PRIVATE BUSINESS

London Development Agency Bill (By  Order)

Order for Second Reading read.
	To be read a Second time on Thursday 16 May.

Oral Answers to Questions

TREASURY

The Chancellor of the Exchequer was asked—

Budget

Kevan Jones: What estimate he has made of the number of families in the north-east of England on middle and low incomes who will be affected by measures in his Budget aimed to support them.

Gordon Brown: Some 300,000 families with children in the north-east and 800,000 families with children in the north-west—around 90 per cent. of families—will be eligible for the child tax credit from April 2003 which, together with child benefit for those earning £50,000 or less, will deliver a minimum of £26.50 and up to £54.25 a week in support of the first child. That compares with a minimum of £11 and a maximum of £27.70 a week in April 1997.
	From next April also, the national insurance rise will fund an expansion of the national health service to the benefit of all. After all the changes, a family on median earnings with two children will be £3.90 a week better off.

Kevan Jones: I thank my right hon. Friend for that answer. Does he agree that the child benefit reforms will help to eradicate child poverty, and that the announcements of increased health spending will mean that it will amount to 9 per cent. of national income? Is not that good news for hard-working families in the north-east and for families everywhere who rely on a health service that is free at the point of delivery?

Gordon Brown: The question is, "What will benefit families in all regions of the country?" There is no doubt that the combination of the changes in child benefit through the new child tax credit and the increased resources available to the NHS means that the quality of life of all families is better. I am pleased that more than 90 per cent. of families will benefit from the child tax credit and that we will have been able to inject, by 2007–08, an additional £40 billion into the NHS. We will invest that money: other parties would make cuts.

Edward Davey: Is the Chancellor aware that, for the north-west, the north-east and other regions of the country, new figures from the Office for National Statistics show that the poorest families pay a higher percentage of their income in tax than the richest families? The poorest 20 per cent of families pay 41.2 per cent. of their income in tax, compared with the 35.5 per cent. paid by the richest 20 per cent. of families. Does the right hon. Gentleman acknowledge that that is due primarily to the burden of council tax and indirect tax? When will he do something about that? When is he going to reform—indeed, abolish—council tax?

Gordon Brown: This is another proposal from the Liberal Democrats that one suspects would cost some additional sums of money. If the hon. Gentleman wishes to abolish the council tax in its entirety, he will have to replace it with something else. As for lower-income families, those in the bottom 20 per cent. are £2,400 a year better off as a result of all the measures that we have taken. The hon. Gentleman should start to recognise that the working families tax credit means, for the first time in our history, that those families are subject to a negative tax rate. They are better off as a result. The measure helps people to get back into work. In addition, the child tax credit means that we are relieving people from poverty. Those are exactly the measures that I wish the Liberal party would support.

Roy Beggs: Does the Chancellor agree that even his best efforts to improve the lot of those on lowest incomes cannot be delivered unless there is uptake of benefits? Has he any plans to increase promotion of uptake of the benefits that he has made available?

Gordon Brown: I am grateful to the hon. Gentleman, and I enjoyed my visit to Northern Ireland last week, when his concerns were among the issues that were raised. The working families tax credit is, for 400,000 more people than was the case with family credit, a benefit for families with children that goes with working. Increased numbers of people therefore receive that benefit.
	As the hon. Gentleman rightly says, the advertising and publicity of the benefits are important. When the children's tax credit was introduced, the surrounding publicity meant that the uptake was far higher than when family credit was first introduced. Equally, when we introduce the child credit and the pension credit next year, we will be telling people of their rights so that they, too, can claim the benefit. Opposition parties opposed the minimum wage and now have to accept it. They opposed the working families tax credit and then—at the election, at least—accepted it. They opposed the children's tax credit and then had to accept it. In the same way, over time they will have to accept the pension credit, the child tax credit and the new employment credit.

Michael Howard: Given his last three answers, is the Chancellor proud of the fact that the Budget was redistributive?

Gordon Brown: Money went to families and to people in employment. Therefore, it was a progressive Budget. It put money in the hands of families, as it should do, and in the hands of people who work. Thank goodness that we have got away from the situation that existed under the Tories, when child poverty rose and there were 4 million children in poverty in this country. Child poverty trebled under the Conservatives. The right hon. and learned Gentleman in particular should be ashamed of his record as Secretary of State for Employment, when unemployment went up by 1 million.

Michael Howard: I remind the Chancellor once again that that was when we were in the exchange rate mechanism—a policy which he specifically supported. Why is the right hon. Gentleman so coy about using the word "redistributive"? Could it have something to do with the fact that on two separate occasions in answer to questions from Sir David Frost on 21 April, the Prime Minister specifically denied that the Budget was redistributive? Is not it utterly pathetic that there is such a chasm between the Prime Minister and the Chancellor that they cannot agree even on whether the Budget was redistributive?

Gordon Brown: The one thing that our Budgets have not been is what the Conservative Budgets were—totally regressive. [Interruption.] Let me tell the right hon. and learned Gentleman, so that he can say what the Conservative party position is—[Interruption.]—that first—[Interruption.]

Hon. Members: Order!

Mr. Speaker: Order. Let us hear what the Chancellor is saying. I cannot hear him speak.

Gordon Brown: First, a progressive Budget will transfer money to families. Does the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) agree with our policy of eradicating child poverty? Will he support the child tax credit that is doing more to take people out of poverty now than ever was done under the Conservatives?

Mr. Speaker: Order. The Chancellor should not be asking questions, he should be answering them.

Gordon Brown: This is a progressive Budget because it transfers money to families. I hope that the whole House will support the measures that give extra money to children and to families, and where more goes to those who need it most. Equally, the Budget transfers money so that people who are in work and on low incomes get extra income, and I hope that the whole House will support those measures too. This is a progressive Budget and, as the Conservatives have had to admit, it has the support of the people of this country.

National Health Service Funding

Henry Bellingham: What discussions he has had with Mr. Wanless since the 2002 Budget on the contents of the final version of the Wanless report.

Gordon Brown: In response to recommendations in Mr. Wanless's report, the Budget announced a five-year settlement for NHS spending—more than £40 billion extra by 2007–08. Because resources must be matched by reform, in line with Mr. Wanless's recommendations, the White Paper "Delivering the NHS Plan", published by my right hon. Friend the Secretary of State for Health, announced further major reforms. I have not met Mr. Wanless since he completed his report.

Henry Bellingham: I thank the Chancellor for that extremely courteous reply. However, is he aware that in my constituency, the Queen Elizabeth hospital is facing serious shortages of radiologists, radiographers and nurses? Given that inflation in the NHS is running at 4.5 per cent., that 45 per cent of its budget goes on wages, that many employees who will be worse off as a result of the Budget will want inflation-busting pay increases, and that the NHS, as an employer, will have to pay out much more in national insurance contributions, what guarantee can the right hon. Gentleman give my local hospital that the much-needed resources will go to patient care? Surely it would have been better if Mr. Wanless had been asked to look at all aspects of health funding, as then we could have had a proper, constructive debate on the future.

Gordon Brown: If the hon. Gentleman wants more money to go to the hospital in his area he should support the Budget, which puts an extra £7 billion a year into the national health service next year and £40 billion extra by 2007–08. Perhaps he should be telling the shadow Chancellor that the Conservative party should change its position on the Budget.

James Plaskitt: I am sure that my right hon. Friend will recall the Wanless report concluding:
	"Success or failure will ultimately depend on how effectively the health service uses its resources."
	In the light of that conclusion, what mechanisms will my right hon. Friend put in place to ensure that patients get a real return on this record investment in the service?

Gordon Brown: As my hon. Friend knows, side by side with the Budget were the proposed reforms of the national health service that were agreed by the Secretary of State for Health and announced by him the next day. One set of proposals covers statutory audit, statutory inspection, the statutory right of patients to make complaints and for them to be dealt with independently, an annual report that has to be published each year for Parliament by an independent regulator of the health service, as well as local reports and prospectuses that must be published by each health authority. Information, the power to scrutinise and to carry out proper audit of the use of money, is enshrined in the way in which the health service works for the first time in its history. Equally, we have set national standards but are giving hospitals locally, through rewards for better performance, incentives to do better.
	I believe that the combination of those factors as well as dealing with the performance of failing hospitals means that we will secure value for money. I hope that we can restore in this country the consensus on the national health service that existed for 50 years but has unfortunately been broken by the Opposition.

Matthew Taylor: The Liberal Democrats would have preferred an increase in income tax rather than national insurance. However, we welcome the money that is being put into the NHS and the fact that the Government have at last admitted the obvious—that saving the NHS needed investment, which needed tax rises.
	Did the Chancellor honestly have no idea that tax rises were necessary when he fought a general election campaign just a year ago? If he did know, why did he not have the courage to put that to the electorate so that they could choose the tax rise rather than have the Chancellor choose it after the election? Is that not an act of cowardice?

Gordon Brown: Not at all. We set up the Wanless inquiry in 2000; it worked through 2001 and made its interim report in December 2001. When we received its final report, we made a decision on what resources were needed. The more sensible way to go about things is to consider what resources are needed, to make a decision on what we need for the next five years, and then to make a decision on how to raise the money, but I know that that is not how the shadow Chancellor makes policy for the Liberal party.

John McFall: Will my right hon. Friend keep in mind the views of business on Wanless? The Select Committee on the Treasury received a submission from the CBI stating that £10 billion was lost in workplace absences in 1999. Does my right hon. Friend agree, therefore, that the huge cash injection will be good for both employers and employees, getting more people back to work and giving us a healthy nation?

Gordon Brown: I am grateful to the Chairman of the Treasury Committee for putting those views. We know that business loses about £10 billion a year as a result of people being unable to go to work due to ill health. We also know that in every major health care system in the world employers as well as employees make a contribution. The contribution of 1 per cent. from employers and employees is, in our view, the fairest way of going about funding the health service for the long term.
	I am pleased that almost all political parties in the House, including the Liberals, support a health service free at the point of need. The unfortunate thing is that the only party which no longer supports a health service free at the point of need is the Conservative party.

David Ruffley: The Budget's fiddled assumptions can no longer conceal the £7 billion black hole in the Chancellor's NHS spending figure for five years' time. Will he confirm to the House whether taxes will have to rise, borrowing will have to rise, or both will have to rise, if he is to fill that black hole?

Gordon Brown: Once again, the hon. Gentleman, who is also a member of the Treasury Committee, does not conduct his research properly, despite the fact that he was a political adviser—[Interruption.]—probably because of the fact that he used to be a political adviser to the Conservative Government who failed to be re-elected. As was pointed out to him at the Select Committee, the costings for the NHS are given up to 2007–08. It is stated that, prior to the spending plans being set in the 2004 spending review, the fiscal projections assume departmental expenditure limit growth after 2005–06 of 2.5 per cent. in real terms, supplemented by an addition to allow for the five-year health settlement. That should answer the hon. Gentleman's question—as he should have known before he put it.

Dennis Skinner: Does my right hon. Friend agree that when the Liberals open their mouths, we expect them to talk as their belly warms? On this occasion, they have already announced that they want to get rid of council tax at a cost of several billion pounds. They have been very revealing. Will my right hon. Friend comment on their policy? Would he adopt it? They have just announced that it would be a good idea to raise money for the national health service by increasing income tax. There are 11 million pensioners and about half of them probably pay income tax, so the Liberals are calling for a policy to tax pensioners.

Gordon Brown: It is absolutely correct that the national insurance change means that pensioners do not have to pay the tax rise. People who have served the community all their lives and who need the national health service will not have to make the additional contribution that they would have to make if there were an income tax rise. The shadow Chancellor who lives in Truro, as opposed to the shadow Chancellor who lives in Folkestone, must face up to the fact that he spends all his time going around the country talking about local decision making, but he wants to abolish the local taxation available to local councils through council tax. It is time that the Liberals thought out their policy before announcing it.

Christopher Chope: I am disappointed that the Chancellor has not met Mr. Wanless since the Budget. Was not Mr. Wanless appointed on the basis that his report would be the beginning of a debate on reform of the health service rather than the end of that debate? Is not it clear that Mr. Wanless is saying that unless there is reform in the health service, much of the extra investment will be wasted? Does the Chancellor recall that the Secretary of State for Health stated that public service agreements
	"set out the concrete improvements to be delivered in return for the extra investment we are making"?—[Official Report, 24 June 1999; Vol. 333, c. 458W.] Those 1999 agreements did not deliver concrete improvements, unless the Chancellor thinks that the extraordinary record of more administrators than hospital beds is an improvement. When will we see improvements in return for the investment?

Gordon Brown: The improvements are taking place and will continue to take place, and the reforms that we have made as a result of the Budget will ensure that the £7 billion extra a year and the £40 billion extra by 2007–08 secures the value for money that is necessary, but sooner or later hon. Members will have to face up to their responsibilities in this matter. If Conservative Members no longer believe in a health service free at the point of need, they must tell us which charges they would introduce, who would have to pay private health insurance and what they would charge to visit GPs and hospitals. They must face up to the fact that the health service has to be paid for in some way and, if that is not done through taxation, it has to be done through charges or private insurance, which is now their policy.

Offshore Tax Havens

Colin Challen: What steps are being taken to prevent the loss of tax revenues through the use of offshore tax havens.

Gordon Brown: We are determined to tackle tax evasion and tax avoidance, including the use of tax havens, on as wide an international basis as possible. As we made clear at the European Council in June 2000, we believe that greater international co-operation—in particular, the exchange of tax information—is the key to tackling cross-border tax evasion and avoidance.

Colin Challen: I thank my right hon. Friend for that reply. I also applaud the Government for the measures they are proposing in the Finance Bill to deal with tax evaders abroad. There are principally two kinds of people who use offshore tax havens: terrorists, such as al-Qaeda, who seek to destroy government by violent means; and multinational corporations, such as News Corporation, which seek to undermine government by not paying for it. Is my right hon. Friend satisfied with the international co-operation that he has received on this matter? We need to do a lot more about both those groups.

Gordon Brown: My hon. Friend is right. Progress is being made in international co-operation against tax evasion. The OECD issued its conclusions in June 2000 and asked all countries to agree to produce information where tax evasion was an issue. Since then, most countries, including all our dependent territories and our overseas territories, have agreed to produce that information. Seven countries remain unco-operative, and they were named in April this year. In addition, we want to ensure not just information on request, but the exchange of information as the basis of future tax policy. That is why we are making progress with the savings directive, among other things, in the European Union. We will continue, as we did in the Budget, to take further measures as necessary to tackle tax evasion.

John Wilkinson: Will the Chancellor give an assurance that Her Majesty's Government will maintain the fiscal autonomy of the Isle of Man and the Channel Islands—if need be, against the European Union? May I remind him that the Isle of Man balances its budget by law and has a rate of unemployment of less than 1 per cent.? Were it not to have fiscal autonomy, it would be a drain on the British taxpayer, rather than the contrary.

Gordon Brown: I am surprised that the hon. Gentleman refers to the Isle of Man and the Channel Islands under a question that is about offshore tax havens, because the Isle of Man and the Channel Islands have brought themselves into line with the OECD recommendations. As for the savings directive, however, which requests the automatic exchange of information, I hope that all the dependent territories and all the overseas territories that are affected will agree to play their part in exchanging information on an automatic basis so that we can make progress on the directive. In case they do not, I have taken measures in the Budget announcements last month whereby we will take action if they remain unable to help us.

Harry Barnes: How far has international co-operation extended since 11 September on offshore tax havens? Does that co-operation bring nearer the date when it will be possible to operate an international tax on currency speculation?

Gordon Brown: Those are two separate issues. On tax havens, because of the events of 11 September, many countries are very keen to move forward with the exchange of information as the basis on which we can reach agreements about how we deal with tax evasion, as well as money laundering and tracking terrorists' finances. The United Kingdom has agreed that it would be the first country to be subject to international surveillance of the measures that we have taken in that area. I hope that other countries will agree that international surveillance of what they do is very much part of an international system of co-operation to deal with tax evasion. We are taking action on those matters.
	On the issue of tax on speculation, my hon. Friend knows well that the proposals put forward by Professor Tobin were in an era when there was not the liberalisation of currency markets that exists now. Most people would find that while it is worth looking again at whether Professor Tobin's proposals could have a beneficial effect, it is very difficult to implement them. The key question on international aid is whether we can raise the money that is necessary with or without a Tobin tax, so that we can deal with the problems of the third world, particularly education and health. The Government's proposals for a new deal in this matter, involving £50 billion extra in overseas aid, are the best way forward. At the end of the day, national Governments must make the decisions about what they are going to do.

National Insurance Contributions

Tim Loughton: What discussions he has had with the Department for Health about how the increase in class 1 national insurance contributions announced on 17 April will affect costs in the medical profession.

John Pugh: What estimate he has made of the impact of the proposed change in employers' national insurance contributions on services' company profitability for financial year 2003–04.

Patrick Mercer: What discussions he has had with ministerial colleagues about how the increase in class 1 national insurance contributions announced on 17 April will affect workers in the public sector.

Andrew Smith: It is estimated that the changes to employer national insurance contributions announced in the Budget will add around 0.7 per cent. to pay costs on average next year. The cost to the public services will be just over £1 billion, which compares with a planned rise in spending on public services of nearly £20 billion. The changes will, of course, help to fund improvements in public services and a real-terms increase in spending on health over the next five years of over 40 per cent.

Tim Loughton: Will the Chief Secretary confirm that, according to the House of Commons Library, within those figures £217 million of the increase in national insurance contributions relates to the national health service? On the public sector generally, does he expect that higher employers' national insurance bills in the public sector will be financed by Departments or passed on to public sector workers in the form of lower pay settlements? Can he explain to me specifically how hospices up and down the country will cope with the big increases in national insurance contributions, given that they are run by the voluntary sector and largely on voluntary contributions? They will not, therefore, be the beneficiaries of his supposed NHS largesse.

Andrew Smith: If the Conservative party is suggesting that the public sector should somehow be exempt from national insurance contributions, that is an extraordinary proposition. When the Conservatives increased employees' contributions 10 times and employers' contributions five times, I do not remember them ever addressing the question of the impact on the public sector. The money will be found from within the additional resources that we are making available—departmental expenditure limits are increasing by £19.5 billion.
	The hon. Gentleman makes a fair point about hospices, which make an invaluable contribution across the country and in many of our constituencies. As part of the spending review, there will be a cross-cutting review of the role of the voluntary sector in the delivery, and in assisting the delivery, of public services. I shall ensure that that examines the position of hospices.

John Pugh: The service sector of industry employs a huge number of people. As the service sector is not made more profitable by an increase in employers' national insurance contributions, is it fair to say that this sector is one of the major net losers? If not, which business sectors are the major financial losers, or is this the first Budget in history when absolutely everyone is a winner?

Andrew Smith: As we have made clear on many occasions since the Budget, we believe that the national insurance increase is a fair way to fund the much-needed improvements in the national health service, which even the Conservatives claim they recognise are necessary. On the impact on the service sector, I remind the hon. Gentleman that for the average small business, the rise in national insurance contributions is substantially offset by cuts in corporation tax.

Patrick Mercer: I wonder how the Chief Secretary would reply to public sector workers in my constituency to whom I have spoken recently. First, I spoke to two policemen in Newark who doubt that, with the increase in national insurance contributions, they will be able to continue serving in the police force. Secondly, I spoke to nurses in Tuxford—not surgeons or doctors but the lowest-paid of the national health service workers—one of whom said to me that the Chancellor's catchphrase should not have been "Enterprise and fairness" but "Physician heal thyself".

Andrew Smith: The nurses, doctors, police officers, firefighters and other public service workers to whom I have spoken recognise the crucial importance of the extra investment in the national health service. They recognise that that has to be paid for, and national insurance is a fair way of doing that.

Jim Cousins: I represent one of the largest groups of NHS workers outside London. They all say, "Yes, we will pay more national insurance but, for goodness sake, get on and tackle the health inequalities that mean that people in the north-east of England live seven to 10 years less than people in the south-east of England." The direct and indirect costs of those health inequalities far outweigh the direct costs of 1 per cent. on national insurance. Is my right hon. Friend the Chief Secretary getting that message too?

Andrew Smith: I certainly am. It is already a well-established commitment of the Government that health inequalities are a key priority. Indeed, analysing those factors featured large in the Wanless report. It is therefore crucial that resources go into prevention, community health and primary care, as they will do as a consequence of the extra £40 billion that we are making available over the next five years. In addition, we have the benefits of the working families tax credit, the child tax credit, the new deal and our other policies for sustaining high employment. As we all know, unemployment and poverty have long been a big factor in the health inequalities to which my hon. Friend refers. The Labour party is committed to tackling them while the Conservative party, which is unable to come here with any credible policies on health, would allow them to get worse, just as they allowed inequalities to worsen when they were in government.

Roger Casale: My right hon. Friend will be aware that my constituency of Wimbledon has one of the highest proportions of professional and managerial people in the work force. There is a high degree of support for the Budget measures, because people understand and support the fact that money will be spent on rebuilding the NHS. Is it not the case that, even with the increase in national insurance contributions, Britain is still in a much more competitive position than some of our major competitors such as France and Germany? Is it not also the case that we are taking a number of measures to boost productivity and competitiveness? Finally, is it not the case that when we see the changes that the investment in the NHS will bring, we will find even more support from people in the work force for these measures than we find today so soon after the Budget?

Andrew Smith: My hon. Friend is right. The CBI pointed out that ill-health costs business in this country £10 billion a year. Even after this increase in national insurance contributions, business in this country will contribute on average £10 a week towards health care, compared with £60 a week in France and £30 a week in Germany. The contributions in this country are fair and, as my hon. Friend said, they will be welcomed by people in the business community. Anthony Stone of the British Chambers of Commerce said about the Budget:
	"Any of us in business know that we get what we pay for. If we want a world class health service in the UK we need to pay more."
	I believe that that message is well understood in business.

Michael Howard: Does the Chief Secretary recall the words of Labour's 1997 election manifesto, which said:
	"How and what governments tax sends clear signals about the economic activities they believe should be encouraged or discouraged"?
	What economic activity do the Government think will be encouraged or discouraged by their tax on jobs?

Andrew Smith: In our manifesto for the election in 2001, we made our position very clear. The manifesto said:
	"Tax policy will be governed by the health of the public finances, the requirement for public investment, and the needs of families, business and the environment."
	We also pledged that we would put schools and hospitals first and that we would put investment in our public services ahead of the cuts in taxation for which the right hon. and learned Gentleman and his colleagues were arguing. They cannot have any credibility in the House when they say that the national health service needs more resources but oppose our measures to raise them. We have introduced reforms to match those resources, but they say that they have no alternative. The right hon. and learned Gentleman and his colleagues are not advancing a politically or intellectually credible proposition.

Exchange Rate

Vincent Cable: What estimate his Department has made of the level of UK exports if the pound-euro exchange rate fell 10 per cent.; and if he will make a statement.

Ruth Kelly: The specific effects of exchange rate changes depend on the particular causes of each change. The Government appreciate the difficulties that the slowdown in the world economy and weakness of the euro have posed. However, as set out in the Budget forecast, stronger external demand and the anticipated pick-up in world trade should provide a significant boost to United Kingdom export growth, which is projected to increase markedly from the second half of this year and to rise by between 7.75 and 8.25 per cent. next year.

Vincent Cable: Does the Minister acknowledge that the Treasury's model shows that a 10 per cent. change in the exchange rate is the equivalent of 50,000 or 60,000 jobs in tourism alone? Does she agree with the assessment of the president of the German Bundesbank, who was in London last week, that the pound is over-valued and will have to be devalued before Britain can join the European monetary union? Do the Government's five tests allow for an appropriate exchange rate, and if so, how?

Ruth Kelly: I am surprised at the hon. Gentleman's question. He knows full well that the Government are committed to Britain's national economic interest and will take a decision on the euro only if it is in our national economic interest to do so. We have clearly set out our approach to the five economic tests, and it will be rigorous and thorough. We are certainly not about to embark on a running commentary on the progress that is being made.

Peter Pike: Does my hon. Friend recognise that in a constituency such as Burnley, where 36 per cent. of jobs are in manufacturing industry, there are concerns about the value of the pound against the euro? Manufacturing industry has to fix the price of its goods—and sell them—in euros and believes that it is important to join the euro as soon as possible. That would reduce instability and provide security and jobs, although obviously we need to join at the right rate and meet the economic tests.

Ruth Kelly: I am glad that my hon. Friend recognises the importance of the five economic tests and that any decision on the euro will be taken in the best interests of Britain's national economy. Of course we are concerned about businesses and, in particular, manufacturing in my hon. Friend's constituency, which is similar to my own in many respects. That is why we are the party that is taking action to support manufacturing; why we are cutting corporation tax; and why we have made permanent 40 per cent. first year capital allowances for plant and machinery for small and medium-sized enterprises. It is also why we have reformed capital gains tax to ensure that this country is the best in the world for entrepreneurship and enterprise. The Budget went further by implementing research and development investment tax credits, and it will provide a platform for growth on which businesses can thrive.

Peter Tapsell: May I point out to the hon. Lady that the five economic tests do not include an examination of the exchange rate, which is what the question is about? What is the reaction of her Treasury colleagues and her former colleagues in the Bank of England to the fact that economists at home and abroad almost unanimously argue that before Britain can practically think of joining the single European currency, the pound sterling will have to be devalued by between 20 and 30 per cent?

Ruth Kelly: I have already explained that the assessment of the five economic tests will be thorough and rigorous and will include all relevant economic considerations, including the durability and sustainability of economic convergence. The best way to achieve a stable and competitive exchange rate, to which we are, of course, committed, is to have a framework for monetary policy that removes the political control of setting interest rates and gives it to the Monetary Policy Committee at the Bank of England. It also needs a fiscal framework that keeps debt under control, something that the Conservatives manifestly failed to do during their years in power.

Kelvin Hopkins: Does my hon. Friend accept that not just the pound but the dollar is overvalued? I am sure that she is aware of speculation in the past week that both the pound and dollar are not only over-valued but likely to depreciate significantly in the coming months and perhaps for the next year or two. Does she agree that that would put enormous pressure on an already deflated eurozone economy, probably force nations in the eurozone to break through the boundaries of the growth and stability pact, and force a fundamental rethink of economic policy in the eurozone?

Ruth Kelly: I thank my hon. Friend for pointing out something that we recognise: some difficulties experienced by manufacturers are caused by the weakness of the euro. In fact, sterling has depreciated against the dollar since 1997. We are committed to a stable economic framework in this country and I have set out the policies that we have put in place to ensure that we have one. As a result, the number of people in employment has increased by 1.5 million since 1997, we have the lowest inflation rate since the 1960s, and the lowest interest rates since 1964. I am sure that my hon. Friend agrees that we have a platform for sustained economic growth.

Adam Price: In addition to the president of the Bundesbank, two members of the Monetary Policy Committee, Christopher Allsopp and Sushil Wadhwani, have recently said that the pound is overvalued and that devaluation is necessary. They say that that could work and need not be as disruptive as the Treasury fears. If the Government are unprepared or unwilling to act, perhaps they will consider doing with the exchange rate what they did with interest rates by giving the policy to the Bank of England so that we can get the exchange rate that we need.

Ruth Kelly: What we do not want to do is return to the days of artificially manipulated exchange rate depreciations. We saw what happened when that policy was attempted in the past, and saw the results of policies that led to boom and bust in the 1980s. We are determined to create a platform of macro-economic stability in this country and have introduced policies to make that programme work. We are committed to maintaining a framework that does just that.

Derek Foster: Does my hon. Friend accept that a fall in the value of the pound against the euro would give an enormous boost to manufacturers in the north-east, which is striving to achieve the Government's target of full employment in every region? Does she agree that a fall in the value of the pound is essential if we are ever to join the single currency?

Ruth Kelly: I think that my right hon. Friend will agree that the best thing that we can do for manufacturers is to have economic stability in this country. Once we have a platform of economic stability we can build on it by promoting competition, productivity and enterprise. That is why the Budget set out measures to support manufacturing and introduced a generous volume-based research and development tax credit for large companies, building on work that has already been done to support small companies. That is also why the Budget included exemptions for capital gains on substantial shareholdings in trading companies; why we have increased funding for regional development agencies so that they can act as drivers for growth and productivity throughout the regions; and why we are determined to tackle gaps in the market for finance by setting up regional venture capital funds across the country. Those are the conditions that manufacturers need to thrive and grow but, most important of all, we must avoid a return to the days of boom and bust that manufacturers had to endure for a long time under the Conservatives.

Michael Spicer: In view of what the Minister has just said about manufacturing, why has the rate of productivity been falling ever since Labour took office?

Ruth Kelly: Perhaps the hon. Gentleman would accept that in a period of rising employment—I have already pointed out to the House that the employment figure has risen by 1.5 million since 1997—there may be a cyclical variation in productivity growth. In the longer term, measures that we have put in place will increase productivity growth. I point out to him that the only year in which productivity fell in this country was when his party was in power.

Ian Davidson: Does the Minister accept that an artificial devaluation of the pound would make imports more expensive and thus be inflationary? Does she accept that the real problem is the fact that the euro has collapsed in value, and that that is hardly a sign of success? Does she agree that if we wish to avoid returning to boom and bust, we cannot have any artificially manipulated devaluation?

Ruth Kelly: I thank my hon. Friend for his comments. Economic stability must underpin all the action that we take on the economy. If we get the platform of stability right, we can take the measures essential to help enterprise and build a climate of competition and productivity growth in Britain. That is what we are doing.

Manufacturing

Annette Brooke: What assessment he has made of trends in manufacturing output in the south-west since January 2001.

Paul Boateng: The Government's latest assessment of developments in the manufacturing sector, based on all relevant factors, was published on 17 April in Budget 2002. Manufacturing in the south-west, as in the rest of the United Kingdom, was clearly influenced by the synchronised global slowdown in the aftermath of 11 September. Manufacturing output fell back in March, but is expected to accelerate during the second half of 2002 and well into 2003 as stronger global demand feeds through.

Annette Brooke: In light of the CBI's great pessimism for the south-west, how significantly will the Budget measures this year contribute to at least reversing the current trend in manufacturing, jobs and optimism? How will the measures redress the balance between the housing boom and the failing manufacturing sector?

Paul Boateng: The hon. Lady will appreciate that the cuts in corporation tax, the R and D tax credit, the simplified package of VAT for businesses, and the action that we have taken across the piece to create, through the regional development agencies, a climate of enterprise in the south-west and elsewhere will all contribute to the improvement in manufacturing in the south-west. She is wrong to suggest that the CBI is pessimistic about the south-west. Only today, Mr. Doug Godden of the CBI stated:
	"There are signs that the worst is over. Manufacturing is expecting to increase production in the months ahead."
	I do not call that pessimism.

Adrian Sanders: The Government take great credit for the fact that unemployment has fallen month by month over the past 12 months, but in my constituency it has risen month by month in the past 12 months. More than 5,000 manufacturing jobs have gone in Opto Electronics. How does putting a tax on national insurance help in an area that suffers from high unemployment and wants more jobs, when a tax on income may well have helped my area?

Paul Boateng: Both business and the country as a whole are agreed that it is important that we invest in our public services. There is a direct feed-across between public health and business. Business gains when health is delivered in ways that reduce absenteeism, business gains when the health of the nation is improved, and business is prepared to make its contribution to what we are seeking to achieve in the national health service—a major contribution from that service to the health and well-being of the entire nation.

James Gray: It is only three years since the Chancellor of the Exchequer came to my constituency with a great fanfare of new Labour trumpets to open the expanded Dyson bagless vacuum cleaner factory in Malmesbury, a town of 4,000 people. Mr. Dyson announced recently that he would lay off 1,000 people, not as a result of what is described by the Minister as a synchronised global slowdown, whatever that may be, but because he cannot continue to manufacture vacuum cleaners in the United Kingdom. What is the Minister's explanation to the people of Malmesbury as to why his right hon. Friend's mate Mr. Dyson has laid off 1,000 people in my constituency?

Paul Boateng: The hon. Gentleman must get real and appreciate what is happening across the globe in manufacturing and the global economy. That is what is synchronised—it is happening in all continents post-11 September. He also needs to understand, in relation to his specific example, that Dyson's is upping its R and D investment in our economy. That is what we are seeking to achieve: high value and high skills. That is good for the economy and good for Britain, and it will be good for the hon. Gentleman's constituents.

Local Authorities (Emergency Planning)

Syd Rapson: How the Budget will affect the funds available to local authorities for emergency planning.

Paul Boateng: The Budget has had no effect on the amount specifically made available for emergency planning.

Syd Rapson: I thank my right hon. Friend for that answer and welcome the previous increases on the low base that we inherited from the last Government. However, in evidence to the Select Committee on Defence, local authority representatives claimed that there was a 15 per cent. cut this year for English local authorities, and Portsmouth is receiving a reduction of 5 per cent., from £78,000 to £74,000. Will my right hon. Friend reconsider the means of funding for dealing with civil emergencies—perhaps the issue could be dealt with through the standard spending assessment—to enable the public to have more confidence following 11 September?

Paul Boateng: I know from my time as a Minister of State, Home Office that my hon. Friend takes a great and proper interest in civil defence and emergency planning in his constituency. That is very much to be welcomed. He will be glad to know that the total amount given to local authorities in civil defence grants increased by 36 per cent. in 2001–02, rising from £14 million in 2001 to £19 million in 2001–02. That is a substantial increase. Where there are specific issues in relation to the administration of the civil defence grant, that is a matter for my right hon. and hon. Friends in the Cabinet Office, but I shall certainly draw to their attention the concerns that my hon. Friend expressed.

Mark Francois: A recent survey of county emergency planning officers found that 93 per cent. of the 30 officers questioned felt that emergency planning in local government was severely under- resourced. Given the wake-up call that we received on 11 September, surely the Government can do more to find resources for the people who are so crucial in planning for our safety.

Paul Boateng: I share the hon. Gentleman's belief that we need to ensure that those who plan for our safety and who play such an important role in securing the welfare and safety of us all have proper recognition. That is why my right hon. and hon. Friends in the Cabinet Office and my right hon. Friend the Chief Secretary have given the matter the attention that it deserves, and why counter-terrorism is now specifically treated as a mainstream priority and is being handled through the spending review 2002. The points that the hon. Gentleman and my hon. Friend the Member for Portsmouth, North (Syd Rapson) have properly made will no doubt be taken into account in that review.

Joan Walley: May I also express my concern about the size of the emergency planning budget, especially in view of its failure to keep pace with increases in other spending? In Staffordshire, the fire service co-ordinates the emergency service for all the district councils, Staffordshire county council and Stoke-on-Trent city council, and we now have only seven full-time emergency planning officers. This year, the amount available was settled only in April, meaning that people are now employed on temporary contracts. May I urge my right hon. Friend to tell the Cabinet Office that we need certainty for local authority spending during the next five years so that we can rely on our fire service and its officers to provide the emergency service that we all know is needed after 11 September?

Paul Boateng: I am grateful to my hon. Friend, not least for the interest that she takes in this subject. She will know that no decisions on the other elements of local government funding have yet been made. They will be announced in the spending review in the summer. I am sure that my hon. Friend will join me in welcoming the additional £43 million that has been found for 2002–03 from the capital modernisation fund for the fire service, part of which will meet the very concerns that she has expressed.

Tourism (South-West)

Paul Tyler: What analysis his Department has undertaken on the impact of (a) the slowdown in the world economy and (b) the exchange rate with the euro on the tourist industry in the south-west of England.

Ruth Kelly: The Government fully appreciate the difficulties that last year's world economic slowdown, the tragic events of 11 September and the persistent weakness of the euro have posed for businesses dependent on tourism in the south-west and in the rest of the UK. However, the Budget forecast is for a considerable strengthening of the world economy during 2002 and into 2003 and, alongside a number of initiatives that the Government have introduced to promote British tourism, that should help the industry to recover.

Paul Tyler: May I ask the Minister to concentrate on the impact of the exchange rate on the tourism industry, especially in the south-west? Does she recognise that irrespective of whether this country enters the euro, the euro has now entered this country, and is having a dramatic impact, not least on the holiday industry? Has she examined the study published in October 2001 by Caledonian Economics for the British Tourist Authority, and does she accept its conclusion that if we had a realistic exchange rate, the holiday industry could generate 51,000 more jobs and increase its earnings by £1.76 billion?

Ruth Kelly: I point out to the hon. Gentleman that 80 per cent. of visitors to tourist attractions in the United Kingdom are domestic tourists, so the most important thing that we as a Government can do is to create the conditions in which domestic tourism will thrive. Of course we recognise the impact of the slowdown in the world economy, the weakness of the euro and the tragic events of 11 September. In fact, since 1997 the value of the pound has depreciated against the dollar, and American tourists, who are so vital to certain aspects of the tourist industry, should have been encouraged by the exchange rate effects that the hon. Gentleman mentioned.

David Laws: Although the Minister's comments on euro policy were typically enlightening, does she agree that they were not as enlightening as those made earlier this week by a senior Minister at the Department of Trade and Industry, who is sitting not far away from her, and who said that within two years we would have joined the eurozone?

Ruth Kelly: I have already explained to the House the Government's policy on the euro. That policy will be determined by Britain's national economic interests. We must carry out a rigorous and thorough assessment of the five economic tests. Then, if those tests are satisfied, we will have the triple lock of Cabinet, Parliament and the country through a referendum. That is the Government's policy, which remains unchanged.

Public Service Investment (Scotland)

Mark Lazarowicz: If he will make a statement on how his plans for investment in public services will affect Scotland.

Andrew Smith: The Government announced in the Budget substantial increases in provision for Scotland as a consequence of the increases in health spending in England. The increases in 2003–04 through to 2007–08 are £224 million, £858 million, £1.6 billion, £2.3 billion and £3.2 billion.

Mark Lazarowicz: The £8 billion increase in public expenditure that that amounts to is welcomed by my constituents and will, I am sure, be welcomed throughout Scotland. Does my right hon. Friend agree that Scotland can benefit from those increases only if the UK economy as a whole is soundly managed? Can he tell me what he considers would be the effects on future public expenditure trends in Scotland if it were to go along the road of fiscal autonomy, which is the latest wheeze being dreamed up by certain people among the nationalists and others?

Andrew Smith: My hon. Friend is right about the benefits to Scotland of good management of the United Kingdom economy as a whole. The stability that we have put in place, the 1.5 million extra jobs and the expansion in public investment that we can fund demonstrate how Scotland benefits both from being part of the United Kingdom and from devolution and the ability to control matters in the areas that are devolved to the Scottish Parliament and Executive. My hon. Friend is right that those who argue for independence would bring about an economic calamity for the people of Scotland.

John Bercow: Given that health spending in Scotland over the past five years has risen by 28 per cent. in real terms, but that in precisely the same period the average waiting time in Scotland for an out-patient appointment has risen by 25 per cent., why cannot the right hon. Gentleman accept that simply spending more public money without fundamental reform of service delivery will not achieve the improvements that we all want?

Andrew Smith: Not for the first time, the hon. Gentleman is wrong. Waiting times in Scotland are one month less than in England. He reveals that the Conservatives will look for any excuse to stand at the Dispatch Box and run down the national health service, deny the funding that we are providing and remind their constituents that their agenda is the privatisation of the NHS. People will ask, "How much will we have to pay for private insurance, operations or a visit to the doctor under the Tories?" They will never trust the Tories with the NHS again.

Regional Government White Paper

John Prescott: With permission, Mr. Speaker, I should like to make a statement on the English regions.
	Today, my right hon. Friend the Secretary of State for Transport, Local Government and the Regions and I are presenting our White Paper, "Your Region, Your Choice" for more democracy and less bureaucracy. Copies are available in the Vote Office.
	Throughout the United Kingdom and Europe, there has been a growing recognition of the importance of regions as a focus for economic growth and social identity. The Government have challenged the notion that the only decisions worth making are those taken in Whitehall and Westminster.
	We recognise that people in Birmingham or Bradford, Liverpool or Lowestoft, Falmouth or Faversham, Newcastle or Norwich deserve to have their voices heard, too. We believe that Britain as a whole cannot achieve its full potential unless all our regions share in success and, indeed, drive it.
	When we offered devolution, we placed our trust in the people of Scotland and Wales. Today, I am announcing measures to bring decision making closer to the people of England by strengthening regional powers and giving them the choice of regional government.
	We trust the people to make that choice and, if they wish, to choose to elect a regional assembly and give a new voice to their region. The White Paper gives effect to our manifesto commitment to provide for directly elected regional assemblies for those regions that want them.
	My interest in regional policy goes back more than 30 years. In the early 1980s, Michael Foot asked me to draw up a new policy framework to secure agreement for devolution for Scotland, Wales and the English regions. Some hon. Members will remember that that caused some local difficulty as well as problems in the House. The result was the alternative regional strategy, published in 1982, which set out a framework for devolving power to Scotland and Wales, and decentralising power to the English regions.
	In 1994, I appointed Bruce Millan, the former Secretary of State for Scotland and European Commissioner to chair the Labour party's regional policy commission. His report, "Renewing the Regions" said that,
	"without strong regional policy rooted in the regions themselves, and without firm commitment to decentralisation we are unable to develop our national economy to its full potential".
	Many of the ideas in the White Paper find their origins in the earlier reports. I would like to express my appreciation to those who worked on them. Some are Members of the House today.
	The Government have always recognised the regions' potential. In 1997, we inherited one of the most centralised systems of government in the western world. We have changed that. In our first term, we devolved power to Scotland, Wales and Northern Ireland. The Opposition opposed that. In England in our first term, we restored to London democratic citywide government, which the Opposition had abolished.
	We have reformed local government; strengthened and broadened the Government offices for the regions; and set up nine regional development agencies, which, in their first two years, created or safeguarded more than 80,000 jobs. We also helped establish a network of regional chambers and assemblies, which have improved accountability and given the regions a new voice.
	Today's White Paper takes that a step further. It sets out a range of options for people in the English regions. But, whatever they decide, the White Paper will strengthen regional policy across England. In all regions, we are giving extra resources and greater flexibility to the regional development agencies, and regional chambers will have greater responsibilities and a greater role in regional planning. In all regions, we will also give extra responsibilities to the Government offices to strengthen regional decision making and to ensure that government is joined-up in the regions. But for those regions that wish to proceed to directly elected regional assemblies, the White Paper sets out the process. Members are well aware of the different needs and aspirations of our English regions. There is a strong and growing demand in some regions to have a distinct democratic voice and a greater say over their own future. The people of the English regions should rightly have the same choice as we gave to the people of Scotland, Wales and London.
	The White Paper is about striking the right balance, trusting the people, responding to the needs of a modern, diverse and more progressive society, and creating the conditions for greater prosperity and reducing disparity in and between our regions. The key, therefore, is flexibility. This will require a pragmatic approach and the consent of the people of the regions. Where there is a referendum in favour of them, we will establish elected regional assemblies, and I believe that where one or two regions lead, others will follow.
	The White Paper sets out the powers, functions and financial arrangements for these new elected regional assemblies. They will have real power and funding to improve the quality of life of people in their region, particularly by improving regional economic performance. Indeed, raising growth by just 0.5 per cent. for the worst-performing regions would increase our national wealth by £20 billion in 10 years. As my right hon. Friend the Chancellor's pre-Budget report made clear, if all our regions raised their productivity to the national average, the average person in the United Kingdom would be £1,000 a year better off.
	Regional assemblies will be responsible for developing joined-up regional strategies on issues such as sustainable development, economic development and regeneration, skills and employment, planning, transport, housing, health improvement, and culture. Assemblies will have a range of powers to help them to deliver those strategies. For example, they will allocate funding for economic development, housing, tourism, arts and sport. They will also be responsible for the regional development agencies, appointing the board and approving the regional economic strategy.
	Regional assemblies will be funded primarily by central Government grant, and they will have complete freedom to spend that grant as they judge best. We will agree targets with them and provide a single pot for regional government. In addition, they will have the power to raise further funds through a precept on council tax and through borrowing. Naturally, budgets will vary depending on the population of each region. On current expenditure, the budget for the north-east would be about £350 million a year, and for the north-west about £730 million. On top of that, the assemblies will have a direct influence over large amounts of central Government public expenditure—some £500 million in the north-east and £1.3 billion in the north-west. That is over and above the £3 billion spent by local authorities in the north-east region at present.
	Elected assemblies will need to be big enough properly to represent the interests of the different communities in the region, but not so big that they become unmanageable. We therefore propose that assemblies should have 25 to 35 members.
	It is important that an assembly of that size should have broad political representation. In Scotland, Wales and London, we have used the additional member system of proportional representation to elect Members of the Parliament and the assemblies. On balance, we have decided to use the same system for English regional assemblies. The boundaries of each region will be the existing ones used by the Government offices for the regions and the regional development agencies.
	In addition to elected regional assemblies, we would like to see greater involvement of groups such as the business community, trade unions, voluntary organisations and environmental groups. We want to encourage the regional assemblies to draw on the experience and skills of individuals in the region who may not be able to stand for election themselves. We want to build on the experience of the Scottish Civic Forum, the partnership arrangements in Wales, the London Civic Forum and the arrangements introduced in a number of English regional chambers. Different regions may want to use different models. We are asking for views on that. For example, there could be appointed assembly members who could play an active part in the role of the assemblies, but would not have the right to vote.
	Regional assemblies represent a new tier of political accountability. They will work closely with their local authority partners. However, in areas that currently have county and district councils, an assembly would have a third tier of government. We believe that it would be simpler and more efficient if in those cases we moved to a fully unitary system of local government. So where it is decided to hold a referendum for an elected assembly—and only in those regions—there will first be an independent review of local government structures, conducted by the boundary commission for England. That review will examine the two-tier areas of the region, and make proposals for wholly unitary local government. Existing unitary authorities in the region will not be affected.
	We believe that when a referendum is held voters should know the proposed structure of local government, and should be clear about who would do what in their area. I emphasise that the review takes place only in regions where a referendum will be held, and that any restructuring of local government will take place only if there is a "yes" vote in the referendum.
	The White Paper sets out the process and timetable for establishing elected regional assemblies. Before we decide which region or regions should hold the first referendum, we will consult all the English regions on our proposals. The Secretary of State will decide whether a region should hold a referendum primarily by assessing the level of public interest in the region. In reaching his conclusion, he will seek the views of the regional chamber, local authorities and other key stakeholders.
	We intend to introduce legislation to provide for referendums and local government reviews as soon as parliamentary time allows. We intend to allow a referendum to be held before the end of this Parliament. After a region has voted for an elected assembly, we intend to introduce further legislation enabling assemblies to be established. That would make it possible for the first regional assembly to be up and running early in the next Parliament—under a Labour Government, of course.
	All English regions will benefit from our strong regional policy, and we will continue to develop the regional structures and agencies that we established in our first term. Furthermore, our White Paper offers the opportunity of a new constitutional settlement for the English regions, a choice that has been denied them for far too long.
	The opponents of our proposals must answer this question: if devolution is good enough for the Scottish and the Welsh, why should they deny that choice to the people of England? Our proposals will give the regions of England new choices, new powers, and a new voice. By devolving power, we can elevate our democracy; by empowering our regions, we can engage people more effectively; by harnessing the energy of the regions, we can drive forward the nation's economic growth; by embracing diversity, we can strengthen the United Kingdom; and by liberating the potential of our regions, we will be helping Britain to prosper.
	I commend the proposals to the House.

Theresa May: I must say to the Deputy Prime Minister that it is the way he tells them; it really is.
	I am grateful to the Deputy Prime Minister for his courtesy in giving me prior sight of the statement. His recognition of the courtesies of the House could well be a lesson to some of his colleagues. However, I also commiserate with the right hon. Gentleman. He said in his statement that he had long been an advocate of regional government, and we acknowledge his consistency in that regard. He has, we know, worked hard to battle for the White Paper. I am only sorry that, on the day of its introduction, he has been somewhat upstaged by the Secretary of State for Transport, Local Government and the Regions.

Eric Pickles: Sabotage.

Theresa May: Sabotage indeed.
	We are opposed to regional government because we believe that regional assemblies will take power away from local government, lead to the abolition of county councils, and take decision making further away from local communities. The Deputy Prime Minister claims that today's measures will bring decision making closer to the people of England, but far from devolving power, they will centralise it, taking it further away from local people. The Government are simply going in the wrong direction, pulling power up to remote bodies; we want to push power down to local people and to local communities. We want community government, not regional government.
	The Deputy Prime Minister also says that it is a matter of choice, but it is some choice for those who do not vote for a regional assembly. We learn from his statement that the regional chambers, government offices and regional development agencies of even those regions that do not vote for an assembly will be given greater responsibilities and powers, greater opportunity to take decisions affecting people's lives, and greater opportunity to take decisions away from elected local government representatives.
	The Deputy Prime Minister claims to have changed one of the most centralised systems of local government in the western world. Tell that to the local councils that now have 15 per cent. of their funding ring-fenced by this Government, and who can spend it only on what this Government say they can spend it on.
	The Deputy Prime Minister also tells us that, as a result of the introduction of regional assemblies, a complete review of local government will need to be undertaken in the areas concerned. That sends one clear message: it will lead to the abolition of county councils. Counties count. They are historic areas, with which people identify clearly. I wonder how many people in the north-east realise that regional government will mark the end of Durham and Northumberland county councils. How many people in the south-west realise that it will mark the end of Devon, Cornwall, Dorset and Gloucestershire county councils?
	Regional government will mean that decision making is taken away from local people and given to the regions, but we must recognise that there are differing needs. In the south-east, for example, the needs of the Kent coastal towns are quite different from those of the Thames valley. Will people in Falmouth really want decisions affecting their lives to be taken in Bristol? Will people in Sunderland want Newcastle to rule their lives?
	We also learn from today's statement—[Interruption.]

Mr. Speaker: Order. There is far too much noise in the Chamber. The hon. Lady must be heard.

Theresa May: Thank you, Mr. Speaker.
	We also learn from today's statement that the new regional assemblies will, after all, have tax-raising powers such as the power to raise a precept on council tax. The Deputy Prime Minister presents that as a great advantage, but I doubt whether the people of London, on whom the Mayor and the Greater London Assembly have imposed a 30 per cent. precept, would regard granting such powers to regional assemblies as a good thing. We are talking about budgets of about £350 million a year, but county councils such as Essex and Kent have budgets of some £1 billion a year. Exactly what will regional assemblies be able to do?
	The Deputy Prime Minister said at the beginning of his statement that this is about more democracy and less bureaucracy, but we now learn that regional assemblies will be responsible for developing joined-up regional strategies on issues such as sustainable development, economic development, transport, housing, health improvement and culture. Does that constitute less bureaucracy? What will happen to the existing quangos when regional assemblies are in place? How many quangos will be abolished?
	In its 1997 manifesto, the Labour party pledged that regional assemblies would require
	"confirmation by independent auditors that no additional public expenditure overall would be involved".
	However, the reorganisation of local government is likely to cost up to £2 billion. Does the Deputy Prime Minister stand by Labour's manifesto pledge, and will he confirm that if additional public expenditure is involved, regional assemblies will not go ahead? Will the tax-raising powers for the regional assemblies be limited, as they are in Scotland, or will they be unlimited?
	These regional assemblies will not provide greater opportunities for devolving power down to local people: they will raise power up from local government, destroy county councils and mean that local communities have less say in their lives and in decisions affecting them than they have today. These proposals for regional assemblies will mean less democracy, more talk and more tax. It is a centralising measure and we will oppose it.

John Prescott: I suppose that I could return the compliment and say that it is the way the hon. Lady tells them, but that would be flying in the face of history. I presume that the Tories are still responsible for what they did in government. Let me remind the House that they opposed Scottish devolution: they now accept it. They opposed Welsh devolution: they now accept it. They opposed the Greater London Authority: they now accept it. They opposed the Scottish regional development agency: they now accept it. They opposed the Welsh regional development agency: they now accept it. They also opposed the RDAs for the English regions, although God knows why they felt that England should not have economic agencies to deal with similar problems of jobs and investment. I shall have to treat the hon. Lady's comments with some contempt, because of the Tories' history. They oppose proposals and they shout a lot, but in the end they come to accept the new ideas. That is what will happen in this case.
	The hon. Lady said that the proposals would mean more bureaucracy and less democracy, but decisions in the regions are made at present by Government offices. Who set up the Government offices? It was the previous Administration, but not all Departments were included. They are now, and that is an improvement. However, it is not sufficient for the regions to have civil servants making decisions—that is bureaucracy—when directly elected members could make the strategic decisions. If we are replacing civil servants, who are by definition the bureaucracy, with directly elected members, that will mean more democracy and less bureaucracy. Both civil servants and elected members have a part to play, but I cannot accept the hon. Lady's arguments on that point.
	The hon. Lady mentioned precepts. When her party was in government, it abolished the Greater London council, but it did not consult the people of London on that. When the Conservatives came to finance its replacement, what did they use? They used a common form of precept, as the hon. Member for Brentwood and Ongar (Mr. Pickles) can tell the hon. Lady. Under all Governments, precepts have been seen as a proper mechanism for financing local authorities. They are used even today in the metropolitan authorities. The precept has been a proper form of financing—alongside grants, which I also mentioned—for local authorities.
	We heard some hypocrisy from the hon. Lady, whose concern for quangos is touching. Most of the quangos grew up under the previous Administration, because they did not trust the elected members of the regions to make decisions. We totally reject that approach and we will provide the people with an alternative of regional elections, as proposed in the White Paper.
	The hon. Lady said that the regional assemblies will take powers away from local authorities. I understand that she has not had the chance to read the White Paper, but when she does she will see how the local authorities will retain the powers that they have. The proposals involve decentralising from the Government down to the regions.
	The hon. Lady mentioned counties. There are county structure plans, as the hon. Lady has mentioned in the past, but that sort of regional body is not enough. Some areas are larger than individual county councils and there can be several county councils in an area. They will now have a regional body. There is no need for a county structure plan if there is a regional planning body. That is precisely what we are proposing.
	The hon. Lady spoke about county councils. We are giving people the choice to retain or reject a county council. They will be able to decide whether they want to keep the existing local government structure or move to an elected assembly. We trust the people, and we give them the choice. That is called a referendum. We are not imposing the structure.
	That is why the White Paper is about choice. If people in the south-east want to retain the current structure, that is fine: let us give them the chance to decide whether they want to advance through the referendum process towards regional government. However, it is their choice. It is not for people in Newcastle to choose for people in the south-east. Each region will make its own choice about its local authority. That is called consultation and democracy. The White Paper is dedicated to that purpose.

Alan Beith: Will the Deputy Prime Minister accept that the Liberal Democrats have been campaigning on this issue for years? We welcome the fact that the right hon. Gentleman has brought forward proposals today. We will examine them closely to see whether they will achieve what needs to be achieved—bringing the regional government that already exists in this country under proper democratic control, and bringing down to regional level decisions that are now taken in London and which should be taken much closer to the people whom they affect.
	Does the right hon. Gentleman understand that we have some anxieties about the slowness of the process, which involves two stages of legislation? When they vote, will people know precisely what powers will be available to their regional assembly, or will that depend on a subsequent piece of legislation?
	Is the Deputy Prime Minister aware that we do not approve at all of his involvement of local government reorganisation in this process? The White Paper is not supposed to be about local government. If there is a job to do reorganising local government, would not it be far better, rather than trying to organise it from London, to let the regional assembly do it once it has been elected?
	Does the Deputy Prime Minister accept that the council tax is not a particularly fair tax? It is not a very good instrument, as it will also confuse the role of local government with that of regional government, which is something quite different. Also, there is no mechanism to deal with those regions where—unlike the north-east, Yorkshire, and the north-west—there is no clear consensus about the regional boundaries. Such a mechanism ought to be established.
	I hope that the Deputy Prime Minister realises that, in regions such as the north-east, there will be a continuing demand for the levels of funding that Scotland has achieved through the Barnett formula. People in the regions affected will regard that as very much part of the process. The argument about establishing a version of the Barnett formula for the north-east or north-west will not go away simply because the regional assembly argument is moving forward.
	Will the Deputy Prime Minister recognise that the Liberal Democrats want to make the process work, so that it delivers to people in the regions something for which they will vote? When the legislation comes forward, we will seek to improve the package. We will also aim to help to present it more effectively than the Government have managed so far. In that way, people in regions where there is already a recognised demand for democratic control of regional government will be able to vote for it, and thus achieve it.

John Prescott: I thank the right hon. Gentleman very much for his words of support. The most recent Liberal Democrat document on regional policy was produced a few weeks ago, and there is a clear difference between our approaches to the matter. However, we agree on the essential objective—that people should be able to make a decision about regional government.
	I look forward to the debate about the balance between the powers of regional government and local authorities. The right hon. Gentleman will be able to see how they are spelled out in the White Paper. Any confusion about the use of precepts or council tax stems largely from the Liberal Democrats' belief that the regional body should have tax-raising powers. That is a fair position, and no doubt we will hear the debate. The same proposal arose in the debates about devolution, and different solutions were found for the Welsh Assembly and the Scottish Parliament.
	The right hon. Gentleman asked whether people will know about the powers available to the regions and the counties. I assure him that they will be spelled out, and it will be made clear to people where the resources will come from and what functions the bodies will carry out. We think that that is important, but we believe that a two-tier structure—a unitary and regional structure—is appropriate for regional government. However, there are strong arguments about the counties, and that means that the case will have to be made. People will listen to the arguments and will decide whether they want a two-tier structure. Our judgment is that a two-tier structure is the best.
	Local authority members would not necessarily all be happy if a new directly appointed regional assembly decided the local structure in their area. That is one of the reasons why the Tories imposed the unitary system in Scotland without asking the Scots about it—because it was highly controversial. The Banham inquiry did not complete the arguments for a unitary system because it ran into a lot of flak in different parts of the United Kingdom. We have now come to a political judgment that it would be better to have two tiers—a regional and a unitary system of government. We look forward to the debate and the contributions to be made by Opposition Members.

Andrew Bennett: Will my right hon. Friend resist being deflected by Conservative Members' crocodile tears about the counties, given that they got rid of the six metropolitan counties? Does he accept that there will be a major welcome for his statement on the Labour Benches, particularly in respect of transferring power from the centre to the regions? However, the balance must be that democratically elected regional assemblies are quickly put into place.

John Prescott: I very much agree with my hon. Friend on these matters. It is a question of balance, but at the end of the day it is about democratic accountability. The simple point is one that I have made before: decisions about the regions are currently made by local government officers and civil servants; we propose to change that so that people can choose to go for a directly elected assembly. That will provide the opportunity for directly elected members to make the decisions, rather than civil servants.

Gillian Shephard: Does the Deputy Prime Minister agree that the principles of accountability and transparency are important for good government at local and, indeed, given what is to follow today, national level? If he does agree, will he explain how the proposals that he has outlined will enhance those principles, given that his explanation of the proposals indicates that they will result in a mish-mash of incomprehensible and remote local government arrangements across England?

John Prescott: I do not accept that. Of course, the right hon. Lady has not been able to read the White Paper. There is a fundamental difference between us, which is quite understandable, and I do not mean this as a criticism. We want to give the people the opportunity to decide what their local authority structure should be. To say that it must be a unitary structure within a directly elected region raises questions about the accountability of the present structure. However, the present democratic structures in the regions can remain as they are.
	People in the regions have to demand change and go through a process and a justification; then there will be a referendum in which the people will decide. We have made it clear today that if we want directly elected assemblies, we must have the unitary local authority system. I should have thought that that would have a great deal of support from the Conservatives—after all, they imposed such a system on Scotland without consultation.

David Clelland: Some of us recognise what others will come to recognise in due course: that my right hon. Friend has done a great service to our nation and to democracy in the announcement that he has made today and the work that he has done on this issue over many years. His announcement will be widely welcomed in the north-east of England, although we would like to discuss certain aspects with him further. It gives the people of the region a choice that would apparently be denied to them by the Conservative party.
	My right hon. Friend spoke of flexibility. Will the legislation that will introduce assemblies be flexible enough to allow for assemblies' powers and responsibilities to be widened, in consultation with the assemblies, without the need for further primary legislation?

John Prescott: First, I thank my hon. Friend for his kind remarks. It is generally recognised in the House that those in the north-east have been at the forefront of demanding an elected regional assembly. One can reasonably assume that they will be first at the gate.
	My hon. Friend says that he will want to discuss some of the details with us. It is no secret that we will be meeting people in the north-east tonight and I shall hear their views. I am sure that it will not be total endorsement and that they will have criticisms to make. There are varying views in the north-east. Some want to see a complete parliament in the north-east, more or less, rather than an assembly. They want to keep all the powers. That is a school of thought in a number of regions, not least Cornwall. However, we must find a balance.
	My hon. Friend asks whether we can go further even before we have drafted legislation or entered into consultation, and I have to say no to that at the moment. However, given what is happening in Scotland and Wales, where people are beginning to feel that they can express their views, I am not surprised that people ask for more rather than less.

Patrick Cormack: As one who is proud of the historical identity of the county of my birth—Lincolnshire—and of the county of Staffordshire, an important part of which I have the privilege to represent, may I ask the right hon. Gentleman to ponder for a moment? He is bent on rewriting, redrawing and destroying the map of this country as people have come to know and love it, and on putting in jeopardy the very identity of England. He is driving people forward by putting in place regional structures that will almost oblige many to think that they must vote in that direction. He is an iconoclast and he ought to be ashamed of himself.

John Prescott: I must confess that I am not ashamed. I see by the smile playing on the lips of the hon. Gentleman that his rhetoric was more for the benefit of those outside this place than it was a serious contribution. There is a clear difference between us: Conservatives in opposition and in government have always imposed their solutions. We are prepared to give choice—that is what the White Paper is about—to people in his area or to people in the north-east or other areas who are interested in the election of a regional assembly. If they take that route, they must accept that the first tier will be unitary. That is the point that the hon. Gentleman made and I understand it, but we made a decision and there is choice and balance in the White Paper.

Austin Mitchell: I congratulate my right hon. Friend; this is a good day for Yorkshire and Humberside and a good day for him—the culmination of the long campaign that he has waged. He might like to know that, this morning, in a vox pop on Radio Humberside, he was named as a potential First Minister for the new Yorkshire and Humberside region. May I express the hope that, even if he is not prepared to enlarge the powers at present, he will consider the proposals as a basis on which to build? What Scotland has, Yorkshire and Humberside need. The regional assembly must have more powers if people are to be prepared to vote for it and support it. What part will the Government play in the referendum process for regional government? Will they support the principle as they did for Scotland?

John Prescott: I thank my hon. Friend for his comments and kind remarks. As to whether I would consider being the First Minister, I am already First Secretary of State in this House, and I am happy with that. I do not want to feed the idea that I might be facing retirement, because those guys up in the Press Gallery will be writing about it for weeks. They rarely write the truth, but given half a chance they will make that kind of comment.
	On the point about powers and balance, there are many powers in the package and we have tried to achieve a proper balance. It is different from what we did in Scotland, Wales or London. We have considered the experiences in those areas so as to establish a proper balance. We are not establishing parliaments in the regions—that is a fundamentally different proposition—we are establishing directly elected assemblies. We think that the balance of resources and powers is right.
	My hon. Friend asked about our support. Clearly, the matter is Government policy, but we want the decision to be that of the people.

David Curry: The Deputy Prime Minister has not deployed what might be the most persuasive argument in favour of regional assemblies: they would be a system of governance of England compatible with devolution to Scotland and Wales. Instead, he has chosen to base his argument on economics. Does he accept that regional disparities in England have increased, despite the creation of regional development agencies? Why does he think that a new political structure will make that any better? Does he intend to ensure that the distribution of public finance to the regions is made on a fairer basis—for example, so that it relates to the per capita income of those regions compared with Scotland? If the benchmark is Scotland and Wales, how on earth does the right hon. Gentleman think that representative democracy, or real accountability, is served by a handful of neither nowt nor summat representatives, representing several hundred thousand electors in tiny assemblies that have no proper link with their electorate?

John Prescott: I accept the argument that this is part of a constitutional settlement that I believe people in England recognise as having been central to my arguments for an awfully long time. As I mentioned before, those arguments were made in the documents that we were writing in the 1980s. What people in Scotland and Wales were asking for was absolutely right, and I supported them in that campaign at the time. I also made it clear that the same demand should be made for the English regions. Indeed, I seek their support for giving people in the English regions the same kind of direct accountability, so there is that political consideration.
	The economic matters are quite important of course, and many people will consider the proposals in that light. But if people consider what happened when Scotland and Wales were given their development agencies by Labour Governments, they will see that there has been a tremendous improvement in the economy of those areas. The improvement is never enough for people in those areas, but if the comparison in made, there is no doubt that the regional development agencies helped to improve their proportion of gross domestic product. That is why the difference was reduced between Scotland and Wales and the English regions.
	It is right and proper that the English regions should have those bodies. People in the north-east feel very strongly about that. They want the same tools and resources to get on with the job and to improve the quality of life for our people. They define that in economic terms, but it is about more than that; it is about the environment, housing and all manner of things that make up quality of life, and the White Paper points that out. So it is right to ask me whether there is a proper balance between a constitutional settlement and the economic requirements to get greater prosperity in our regions. Yes, there is a proper balance, but both those issues come together.

Louise Ellman: May I thank my right hon. Friend for his long-term commitment to the English regions? I congratulate him on being so determined to secure action. I was privileged to be a member of the Millan commission, and it gives me great pleasure to see so many of its recommendations now being put into practice. The regional development agencies already make a difference, but it is certainly high time that the already existing regional tier of government is made democratically accountable and more focused.
	I should like to ask my right hon. Friend whether he is satisfied that the powers now being offered, which undoubtedly open major opportunities, are sufficient to make a real difference, particularly in economic development and transport. Will he reassure us that the Government are ready to listen to the voice of elected regional assemblies? Is he ready to listen to the voice of the north-west, which will welcome this proposal, in the same way as he welcomes comments from the north-east?

John Prescott: I thank my hon. Friend for her kind remarks and for the part that she played in the Millan commission, many of whose recommendations are included in the White Paper. She was also the leader of Lancashire county council, which did a very good job in developing new innovations and ideas on economic development in a county council structure. That was good—one to be welcomed—although I now prefer that to come under the regional development agencies and, indeed, elected regional assemblies. If people in the north-west welcome the proposals and wish to pursue the route of an elected regional assembly, that opportunity is provided for them in the White Paper.
	The Government will have to take into account the fact that the assemblies will have their own pot of money and will make their own decisions, which are now made by central Government. The assemblies may say that they want more resources or more things, and the Government constantly get into debates with councils at present. I have no doubt that elected regional assemblies will make the same arguments. The one thing that I would say for directly elected regional assemblies is that they will have more influence over central Government to ensure a better and fairer distribution of resources.

Angela Browning: May I remind the Deputy Prime Minister that the civil servants currently working in the Government offices for the regions are not unaccountable bureaucrats, as he described them? They are civil servants, answerable to Ministers; and Ministers, in turn, are answerable to Members of Parliament.
	I attended the consultations on defining the south-west region, and I have to tell the Deputy Prime Minister from first-hand experience that the conclusion was that Swindon, the Scilly Isles, Bournemouth, Poole and the coalfields of Gloucestershire had nothing in common that would not apply to any other region of the country. I want to put this to the Deputy Prime Minister: if, in the course of the consultation, the south-west puts a proposal to him to break into two regions—or even three regions, as Cornwall wants to go its own way—would he consider that and give it his blessing if that was what the people wanted?

John Prescott: It is a question of choice, which is precisely what we have put in the White Paper. I hear what the hon. Lady says about Government offices, and I want to correct the impression that I might have given on that. I am the Minister to whom the Government offices are responsible, and I think that they do an excellent job—so much so that we have broadened their representation, and more Departments are actively involved in them. Furthermore, they were an idea of the previous Administration, which I thought was excellent. My only disagreement is this: if they make recommendations to Ministers, who debate with Members of Parliament here, why cannot they have a say about the priorities of their areas? That can be achieved effectively only by an elected regional assembly—[Interruption.] I hear hon. Members' objections, but, although it might be possible to get a question or a little bit of space in a debate at Westminster, that is no longer satisfactory to people in the English regions. Even if they are satisfied, we leave it with them to make that choice. Those who are not satisfied, however, will have a directly elected assembly, which will be more democratic and less bureaucratic.

Martin Salter: Is the Deputy Prime Minister aware that the bleating of the hon. Member for Maidenhead (Mrs. May)—who is no longer in her place, so I presume she has gone to lick her wounds—about the continuation of county councils is nothing more than hypocrisy and cant. Why, in 1994, did Conservatives in Berkshire—the area now represented by the hon. Lady—propose the total abolition of Berkshire county council?

Mr. Speaker: Order. The hon. Gentleman should be putting questions to the Deputy Prime Minister not about the Conservative party but about the policies of the Government. I think that the Deputy Prime Minister has got the drift of the hon. Gentleman's case, and perhaps he can try to reply.

Hon. Members: He was not listening.

John Prescott: I heard my hon. Friend quite clearly. He was talking about more hypocrisy under the previous Administration. Indeed, he reminds us that they abolished Berkshire county council. Despite all the talk that I am hearing about keeping county councils, the Conservatives reduced the organisation in Scotland to unitary authorities and abolished the Greater London Council. All of that was without any consultation with the people in the areas concerned. The White Paper puts down a proposal and allows people to make a choice. That is the fundamental difference between the Government and the Opposition.

Andrew George: The White Paper talks about trusting people, flexibility and embracing diversity. In the light of that, does the Deputy Prime Minister accept that, if the Government merely attempt to replace an over-centralised state with a centralised solution, the whole project will become unpicked? Given the chance, voters will simply stay home in their droves. Although chapter 6 of the White Paper refers to the possibility of flexibility about those regions, does the Deputy Prime Minister accept that the whole project will fail if the Government become obsessed with their own regional boundaries?

John Prescott: I do not believe that a centralised solution is being imposed on people. The Government have made a judgment, which is embodied in the White Paper. I hope that the House will have an occasion to debate the details and the flexibilities in the White Paper in the not-too-distant future. We have decided on the best form to offer as a choice. I agree that we are not keeping the local authority structure as it is—we are saying to people, "If you want elected regional representation, you must accept a unitary structure." We therefore have a boundary commission to give us recommendations on that. That is a political choice, but it is up to the people to decide whether they keep what they have or take the structure that we are offering.

Patrick Hall: Does my right hon. Friend agree that the good case that can be made for democratic regional government will be all the more persuasive if the long-term and deliberate decline in the powers of local government that was brought about by the Conservative party were firmly reversed? Does he agree that the opportunity to do that and to increase the powers of local government will arise through the creation of the unitary authorities to which he has just referred?

John Prescott: I believe that the unitary authority system is the best form of local government, and I think that the previous Administration felt the same. After all, they imposed a great deal of it throughout the country, and that was right. Such authorities have considerable powers and important decisions to make about the services that they provide in their area. However, I return to the point that we shall have a two-tier system if an area chooses to have an elected regional assembly. That option is right, and it would not undermine in any way the influence, controls and resources that the unitary authorities have. We are decentralising from the top down to the regions, and not from the local authorities.

Peter Viggers: Does the Deputy Prime Minister recognise that devolution in Scotland and Wales created for the Government a problem in the north-east and the north-west, which now feel disadvantaged? However, that is absolutely no reason to impose regional government on areas of this country that have no desire for it whatever. They will view the current plans with anger and disbelief. Is he aware that there is a strong feeling of county in Hampshire, which is based on the historic capital of England, Winchester? The county has shown itself to be sensitive to the different social and economic needs within Hampshire. Can the right hon. Gentleman try to give us an assurance that, if any area rejects the proposals, it will not be economically disadvantaged?

John Prescott: That is precisely what I have been trying to say. It is all about choice. If the people in an area do not want a directly elected regional assembly, they will presumably not ask for it. If some in an area think that there should be such an assembly, the Secretary of State will come to a judgment as to whether there is sufficient demand in that area. The White Paper spells out just what he has to take into account and, in those circumstances, there either will or will not be a referendum. At the end of the day, the judgment will be whether the people in a region want an assembly.
	I have heard much from Conservative Members that such assemblies are not wanted in the regions and we can all quote stories about whether they are or are not wanted. However, a BBC poll says that two thirds of the population are in favour of regional government. [Hon. Members: "Not in the south-east."] I shall come to the south-east—hang on. The big differences in support were clearly reflected geographically. In northern areas, support for regional government was more than 63 per cent.— 73 per cent. on average—and, by the way, the west midlands is included in that. In the south-east, an average of between 50 and 60 per cent. were for regional government. Therefore, the figures suggest that a substantial number of people are prepared to consider proposals for regional government.

Joyce Quin: In contrast to the carping from some Conservative Members, may I say that I think that my right hon. Friend's announcement is of huge significance for the English regions? For my region of the north-east, it represents a great opportunity for us to pioneer the process, and I hope that we will do that. I am still an owner of the alternative regional strategy that my right hon. Friend mentioned and I can recommend it as reading to the Conservatives, as they need common sense on the issue.
	May I press my right hon. Friend on the consultation period that he has announced? Will he use it as an opportunity to say to the regions of England, including the north-east, that the proposed organisations will have real budgets and real powers? Will he also reaffirm his message about inclusivity, because everyone in the regions—business, organisations, voluntary groups and all our communities—can benefit from these proposals?

John Prescott: I thank my right hon. Friend for her remarks. I remind the House of the role that she played in bringing about the White Paper and greater powers for the regions. She rightly tells us that the north-east is a pioneer; clearly, it has been. I shall hear more about that in the north-east later today when I am accompanied by my right hon. Friend the Secretary of State for Transport, Local Government and the Regions.
	I am grateful for the comments that my right hon. Friend the Member for Gateshead, East and Washington, West (Joyce Quin) made about the alternative regional strategy. I will make it available, and I can claim that, in contrast to the Opposition, the views I held 20 years ago are consistent with what I say today. The Opposition's views are hardly consistent from year to year or from election to election, but that is the nature of the current Opposition.
	We are providing real budgetary powers, real finances, real powers to get on with the job and greater democratic accountability. That is shown in the White Paper. No doubt when we have the opportunity to study it, the House will debate its details and determine whether my points are justified.

John Maples: What the Secretary of State has not told us is what very bad news elected regional assemblies would be for rural areas. Is it not inevitable that a regional assembly in the west midlands would be dominated by the interests, agenda and representatives of the Birmingham conurbation, and would suck in cash and powers from the rural areas? Whatever value county councils have, at least they provide some voice for rural areas in local government, which the right hon. Gentleman is proposing to abolish. Will this not inevitably be another advance in the interests of our great cities at the expense of our countryside and market towns?

John Prescott: It appears that this debate will continue as it started—by reflecting the hypocrisy of the Opposition. I will take no lectures from Tories on what happens in rural areas. The facts are clear to see from their 18 years in government. Since then, we have begun to make improvements. For the first time, we have produced a rural White Paper to consider precisely how we might improve the quality of services. At least we guarantee rural areas the advance in services that has occurred in urban areas.
	All the issues, such as the economic provision of jobs, are important. The regional development agencies have been given a specific remit to get on with rural development, which rural areas have welcomed. Many of the things that we have done are starting to show improvements. Frankly, if areas decide to choose the path of an elected regional assembly, every rural and urban population in those areas will have a responsibility because that is how every region in the United Kingdom is made up.

Derek Foster: Is my right hon. Friend aware that for those of us who, like himself, campaigned for more than 25 years for regional government, the publication of the White Paper is a cause of huge celebration? It represents a great leap forward in establishing a vigorous authentic voice for the north-east. Is my right hon. Friend also aware that we know that the White Paper would not have been published without his tenacity over the past 20 years?

John Prescott: Of course I am grateful for my right hon. Friend's candid remarks. He has campaigned on this issue for a long time and, indeed, we have worked together on such campaigns. It is a special day for us because we belong to a Government who are introducing a White Paper on regional government. It is a great leap forward, as my right hon. Friend says. It will allow each region to develop a special voice, especially in the north-east. We have the opportunity to go out and sell the case and to show that there can be a more democratic way of working, which is what the White Paper does.

Andrew Turner: The right hon. Gentleman and his right hon. Friends have been generous to my constituency in the words they have used in the House in recognising its unique status in England. Can he confirm that no powers would be taken from the Isle of Wight county council to the mainland under his proposals and that it would be represented in the regional assembly by a unique individual?

John Prescott: I assure the hon. Gentleman that if the people do not choose to take the route of an elected regional assembly, the present local government structure will remain as it is. However, if the region that includes the Isle of Wight wishes to go for a directly elected assembly, the local authority structure will be considered by the boundary commission and included in the proposals for a referendum. It is a choice for the people in the Isle of Wight and the south-east region.

Jeff Ennis: I welcome today's announcement, particularly in view of the fact that I represent a constituency in the middle of an objective 1 area which has the lowest gross domestic product per capita in the United Kingdom. Does the Deputy Prime Minister agree that the future establishment of regional assemblies can only assist and enhance the future economic regeneration of neglected places such as Barnsley and Doncaster?

John Prescott: I have no doubt that that will help areas such as Barnsley, but we should also take into account Government measures before the White Paper, not least the £350 million coalfield community fund, which we introduced to help mining areas that had been destroyed, particularly by the vicious policy pursued by the previous Administration.

Martin Sixsmith

Stephen Byers: With permission, Mr. Speaker, I would like to make a statement about Martin Sixsmith in response to—[Interruption.]

Mr. Speaker: Order. I understood that some hon. Members wanted to hear a statement from the Secretary of State; he will be heard.

Stephen Byers: With permission, Mr. Speaker, I would like to make a statement about Martin Sixsmith in response to questions and concerns of hon. Members.
	On 26 February, I made a statement to the House concerning Martin Sixsmith. In that statement, I briefly described events that took place on 15 February. I said explicitly that the details of the events of that day were set out in the public statement made by my permanent secretary on 25 February. Both statements made it clear that discussions aimed at resolving the terms of Martin Sixsmith's departure were continuing. Those discussions were conducted without ministerial involvement. A resolution has been arrived at under which Martin Sixsmith is compensated in accordance with his employment rights, and an agreed statement was published on Tuesday of this week.
	Also on Tuesday, a copy of the agreed statement was placed in the Library and reported to the Select Committee on Public Administration, which had asked my Department to clarify the position of Martin Sixsmith as part of an inquiry that it was conducting. I want to take this opportunity to explain to the House how the settlement that was reached with Martin Sixsmith and the agreed statement published on Tuesday relate to my oral statement in the House on 26 February. In particular, I want to address the concern that paragraph 2 of the agreed statement is in conflict with my statement in the House on 26 February and, as some have said, shows that I misled the House. That is simply not the case, and I want to explain why to the House.
	My permanent secretary's statement of 25 February describes in detail two conversations that he had with Martin Sixsmith on Friday 15 February, which led him to inform me that Martin Sixsmith had agreed to resign. His statement also outlined how the announcement was made before it was possible to agree the detailed terms of Martin Sixsmith's resignation, and described his further meeting with Martin Sixsmith on the evening of 15 February, in which Martin Sixsmith argued that he had not resigned.
	It is to precisely that sequence of events that the agreed statement refers when it says that the Department, while acting in good faith, announced that Martin Sixsmith had resigned on what turned out to be an incorrect understanding of earlier discussions that day between Martin Sixsmith and the permanent secretary. There is therefore nothing new here, and indeed nothing that was not a matter of record at the time of my statement on 26 February, which explicitly referred back to my permanent secretary's account.
	In my statement to the House I made clear the reason for my understanding, based on the information that I had been provided with, that Martin Sixsmith had agreed to resign. It was, of course, also abundantly clear from what Martin Sixsmith had said and from the statement of the permanent secretary that Mr. Sixsmith had said that the release of the announcement without his agreement changed everything. All this was apparent on 26 February when I made my statement to the House and indeed before, and was a matter of public record.
	I also described the discussions that were taking place with Martin Sixsmith about an alternative civil service job or agreeing a settlement under his contract. As I said on 26 February,
	"there have been a number of meetings and discussions involving Mr. Sixsmith in an attempt to resolve the detailed terms of his departure."—[Official Report, 26 February 2002; Vol. 380, c. 563.]
	I made it clear that at the time of my statement they had not been concluded—that is, the terms of his departure had not yet been agreed. An agreement has now been reached, which gave rise to Tuesday's agreed statement.

Roger Gale: On a point of order, Mr. Speaker—

Mr. Speaker: I will take points of order after the ministerial statement.

Roger Gale: rose—

Mr. Speaker: Order. I expect better from the hon. Gentleman, who is a member of the Chairmen's Panel.

Stephen Byers: I have not misled the House, as some have alleged. All my statements to the House have been based on the information available to me. That is precisely why the agreed statement with Mr. Sixsmith explicitly says that any misunderstanding over his resignation was in good faith.
	While these discussions about the employment status of an individual civil servant have been taking place, Ministers in my Department have not been diverted from the real tasks that face us and the people of our country. Those tasks are to rebuild communities—[Interruption.]

Mr. Speaker: Order. The Minister must be heard. There is no point in anyone shouting across the Chamber.

Stephen Byers: That task is to rebuild communities and give new hope to neighbourhoods. That is why, since my oral statement on 26 February, we have introduced new laws to get rid of abandoned cars; introduced measures to stop the scandal of children in bed-and-breakfast accommodation; set up nine projects to tackle low-demand and abandoned housing—[Interruption.]

Mr. Speaker: Order. I say to hon. Members that the Minister is in order. If it were otherwise, I would tell him. Now, let the Minister make his statement.

Stephen Byers: Since 26 February my ministerial team and I have introduced new laws to get rid of abandoned cars; we have tackled bed-and-breakfast accommodation for children—[Interruption.]

Mr. Speaker: Order. Mr. MacKay, you are very, very excited. I am chairing the proceedings, and I say that the Minister is in order. I am well aware of the title of the Minister's statement, but the Minister can make the statement. The content of the statement is his business, and he can put it to the House.

Stephen Byers: What we are witnessing is the fact that the Conservatives do not like issues to be addressed. These are the real issues that matter to the people of our country: tackling abandoned cars; stopping the scandal of children in bed-and-breakfast accommodation; tackling the Tory standard spending assessment for local government; projects to tackle low-demand housing; and since 26 February, a bid to take over Railtrack by a company that will put the travelling public first and remove a failed Tory privatisation. Those are the real issues that matter to real people in the real world. So for this Department and this Secretary of State there will be no distractions; we will be getting on with the job.

Hon. Members: Resign!

Theresa May: (Maidenhead) rose—

Hon. Members: Resign!

Mr. Speaker: Order. The hon. Member for Maidenhead (Mrs. May) must also be heard.

Theresa May: Thank you, Mr. Speaker. I should like to thank the Secretary of State for his courtesy in giving me prior sight of his statement.
	Yet again, the Secretary of State has come to this House to explain our incorrect understanding of history—but he is at it again. He has just said that he is here today
	"to address the concern that . . . the agreed statement is in conflict with my statement in the House on 26 February",
	and that
	"That is simply not the case."
	On 26 February, the Secretary of State said:
	"Martin Sixsmith offered his resignation, which was accepted, on 15 February."—[Official Report, 26 February 2002; Vol. 380, c. 574.]
	The agreed statement issued by his Department this week states:
	"The Department accept that Martin Sixsmith . . . did not resign on February 15th".
	The Secretary of State said on 26 February:
	"Mr. Sixsmith's resignation has been accepted".—[Official Report, 26 February 2002; Vol. 380, c. 571.]
	However, the agreed statement says:
	"The Department accept that Mr. Sixsmith has remained in their employment since his contract began on 19th November 2001."
	The Secretary of State said on 26 February:
	"I am clear that, given the way in which he conducted himself in the Department, Martin Sixsmith was not a suitable person to remain in government".—[Official Report, 26 February 2002; Vol. 380, c. 567.]
	However, the agreed statement issued by his Department on Tuesday said that
	"were it not for these unfortunate events, for which no blame is being apportioned, he would continue to be a successful Director of Communications in DTLR".
	The House is always immensely forgiving of those who explain how they have made a mistake, but today we have heard no remorse, no regret and no glimmer of an apology. Last year, the Secretary of State told his electorate that he was "open and honest". Is it not clearly the case that he has not been remotely open and honest when he claimed today that what he said on 26 February is the same as what his Department said on Tuesday? If he had a single shred of decency left, would he not go—and go now?

Stephen Byers: rose—

Hon. Members: Resign!

Mr. Speaker: Order.

Stephen Byers: What I will say to hon. Members is that they should look at my statement of 26 February, the statement made by my permanent secretary on 25 February, which refers explicitly to the events of 15 February, and the agreed statement made on Tuesday. When hon. Members, on reflection, look at what was said on 26 February and at my permanent secretary's statement on 25 February about the events of 15 February, they will in all honesty recognise, putting aside party political points, that this House has not been misled by this Secretary of State.

Don Foster: Given that the Secretary of State has developed a reputation for presiding over the burying of bad news, is it not a great shame that on the day of the publication of the vital White Paper on regional government, he now stands guilty of seeking to bury good news?
	The important aspect of this statement is the question of when the Secretary of State is going to start taking responsibility for the chaos within his Department—not only the chaos that surrounds the alleged resignation of Martin Sixsmith, but the chaos on our buses, roads and railways. When will the Secretary of State start taking responsibility, and how many lives is he to have?
	This is the Secretary of State who wishes to talk about the record of his Department under his leadership, but this is the Secretary of State who created confusion in the chain of events leading up to taking Railtrack into administration, and got away with it. This is the Secretary of State who created confusion over the value-for-money studies on the public-private partnership for the London tube, and got away with it. This is the Secretary of State who told us that no additional money was needed for National Air Traffic Services, then announced that it was going to get it, and got away with it. He told us that there would be no additional money for Railtrack shareholders, then reneged on that, and got away with it.
	Particularly in relation to today's statement by his right hon. Friend the Deputy Prime Minister, this is the Secretary of State who on 29 January this year told this House that
	"there is no agenda for the abolition of Cheshire county council, or any county council."—[Official Report, 29 January 2002; Vol. 379, c. 142.]
	The right hon. Gentleman is going to get away with that as well.
	No wonder we have reached the situation where a letter writer in one of today's newspapers says that even if the Secretary of State announced his resignation, we would not know whether to believe him. The Secretary of State talks about abandoned cars. He is the one who should be abandoned.

Stephen Byers: I agree with one aspect of the hon. Gentleman's comments—the publication today of the White Paper on the English regions is good news. I am personally delighted to have been able to author it jointly with the Deputy Prime Minister.
	There is no hidden agenda to abolish Cheshire county council. The whole point of the White Paper is that we are giving people in the regions the choice, and I should have hoped that the hon. Gentleman would realise that.
	The reality is that despite all the blather and froth coming from Conservative Members, this Department is delivering on the things that matter. We are making progress on buses, roads and the railways, and over time we will see real improvements in the areas that matter to the people of our country.

George Howarth: Does my right hon. Friend accept that most people recognise the difference between matters involving who said what to whom and when, and a genuine attempt to deceive? Does he also accept that people will view the Conservatives' synthetic indignation for what it is: cynical opportunism?

Stephen Byers: My hon. Friend is right. I ask commentators and hon. Members to consider the statement that was made on 26 February, that of my permanent secretary on 25 February and the agreed statement. People will then realise that the House has not been misled.

Brian Mawhinney: Does the right hon. Gentleman acknowledge that in the memory of even the longest-serving Members, those who are privileged to act as Secretaries of State in the service of the House, have, irrespective of the normal partisan give and take, always sought to attain high standards of accuracy, truthfulness, and when appropriate, humility? Does he understand that he has demeaned those standards by his behaviour in the past three months? Does he also understand that he has treated the House with contempt and that he should not therefore be surprised if the House adopts a similar attitude to him?

Stephen Byers: I stress to the right hon. Gentleman and his colleagues that they should examine the record. They should look at my statement to the House on 26 February and my permanent secretary's statement on the public record on 25 February about events on 15 February. When they do that, they will know that I have not misled the House.

Tony Wright: My right hon. Friend has rightly come to the House today to correct an inaccuracy. I commend him on that because it is important that those matters be corrected. He mentioned that his permanent secretary had written to me, as Chairman of the Public Administration Committee, this week. He said:
	"Needless to say, nothing in this 'Agreed Statement' affects the evidence I gave to your Committee on 7 March or my Secretary of State's statement to Parliament on 26 February, which in turn referred to my public statement of 25 February."
	That means that those who want to attack the Secretary of State must also attack the permanent secretary and the Cabinet Secretary. All gave the same account of events on the day that we are considering.
	When the Committee discussed the matter with the Cabinet Secretary, he agreed that there was "chaos" in that section of the Department on the day in question. Is not the important issue to ensure that such chaos never happens again?

Stephen Byers: My hon. Friend makes an important point, and I am sure that hon. Members look forward to the recommendations of the Public Administration Committee when it concludes its report. There is no doubt that there were problems in the Department; they have been resolved. The agreed statement on Tuesday is part of the resolution of the difficulties, and drew a line in sand. I am pleased that that is the case.

Peter Lilley: Twelve thousand constituents who travel on the trains every day are primarily concerned that, following the Secretary of State's renationalisation of Railtrack, punctuality has deteriorated. That is more important than his prolific loss of spin doctors. They also note that he has disowned, dismissed or seen depart the chairman of the Strategic Rail Authority, the chairman of Railtrack, the Rail Regulator and another regulator. They were all appointed by him or his Government. If he cannot get on with those people and they do not trust him, how can my constituents trust him to run the railways properly? And if none of those people was required to be paid £200,000 to keep quiet, why is the taxpayer, and not the Labour party, required to pay that sum to Martin Sixsmith?

Stephen Byers: I have great respect for the Rail Regulator, who I believe is doing a very good job. On the issue of changes at the top of the Strategic Rail Authority and Railtrack, I have to say to the right hon. Gentleman that I do not think that those organisations were delivering to his 12,000 constituents coming in from St. Albans. There is a choice: we can either make big changes to have the opportunity of improving our railway system, or we can tinker around at the edges. I have chosen to make the big changes that are needed. The right hon. Gentleman may criticise me for doing so, but in the end, his 12,000 constituents who travel every day will be the judge. By the time of the next election, what will really matter to them will be not the debate that we are having here this afternoon but whether their trains are safer, more punctual and more reliable—and they will be.

Gillian Merron: The Opposition are baying for my right hon. Friend's blood. While the payment to Martin Sixsmith was legal, my right hon. Friend will be as appalled as I was to learn that, in the public interest report on Lincolnshire county council which found its Tory leader guilty of £750,000 of illegal payments—

Mr. Speaker: Order. This matter does not seem to have much to do with the statement.

Jackie Lawrence: May I ask my right hon. Friend to cease wasting any more time on this issue and to get back to the fundamental responsibilities of his Department—not least transport? Is he aware that, in many instances, it took football supporters more than seven hours to get out of Wales and back to London after the cup final on Saturday? That is more important to the people of this country, and it is certainly more important to the businesses of Wales, whose livelihoods depend on those transport links.

Stephen Byers: My hon. Friend makes the point that really matters to the people of this country. We face huge challenges, and she has just given a good example of where the railway system is not delivering the quality that we all expect it to. Obviously, we need to take steps to ensure that it is improved. Those are the big issues. I have to say to my hon. Friend that, while there has been all this froth from the Opposition, we have not been diverted from delivering what really matters to the people of our country. When hon. Members look at my statement on 26 February, specifically referring to my permanent secretary's statement on 25 February, they will realise that I did not mislead the House.

Edward Garnier: What is the Secretary of State's definition of shameful ministerial conduct?

Stephen Byers: I will simply say to the hon. and learned Gentleman that he should look carefully at what I have said to the House, and at my permanent secretary's statement. He will then realise that there is no conduct for which I should apologise.

Peter Kilfoyle: Could the Secretary of State assure Labour Ministers that he will not be distracted by the pedantry of the most mendacious of Oppositions? Can he also assure us that he and his Ministers will get on with the really important business of ensuring that local councils such as my own—a Lib Dem council—are transparent, and that they properly engage with local communities in the essential business of regeneration, which affects them far more than whatever happens to Martin Sixsmith?

Stephen Byers: My hon. Friend makes an important point, and I am grateful to him. It is not always the case that, when a Secretary of State sees my hon. Friend the Member for Liverpool, Walton (Mr. Kilfoyle) rising to speak—

John Bercow: Terrified.

Stephen Byers: Yes, sometimes they are terrified, or at least slightly worried, because my hon. Friend speaks independently. He speaks his own mind on behalf of his constituents. What he has done today is to articulate the view of his constituents, and the constituents of all hon. Members, that there are far bigger issues that need to be addressed.
	A Secretary of State needs to deliver on the policies and priorities of his Department. I intend to do that. He needs to be truthful to this House. I will do that as well.

Alex Salmond: I know that the Secretary of State wants to draw a line under this, but I honestly doubt that he has managed to do so today.
	Does the right hon. Gentleman accept that, whatever the substantial differences between him and Martin Sixsmith, the one thing they have in common is that they have both taken an inordinate amount of time to tender their resignations? If it subsequently emerges that the House has been misled about any of these matters, will the Secretary of State tender his resignation?

Stephen Byers: The ministerial code is absolutely clear: a Minister who knowingly misleads the House should tender his resignation. That is absolutely right. [Interruption.] Opposition Members who are shouting should look at my statement. I will say this again—[Interruption.] Right hon. and hon. Members may not want to hear, but if they look at my statement of 26 February and my permanent secretary's statement of 25 February they will realise that I have not misled the House.

Paul Farrelly: When the House debates the substantive issue of the railways, as a new Member I often shake my head in disbelief at the number of statements by Conservatives who are simply trying to reinvent history. Will my right hon. Friend please ask the amnesiac Conservative party to apologise—[Interruption.]

Mr. Speaker: Order. The hon. Gentleman should put a question to the Minister; he should not concern himself with the Opposition.

Stephen Byers: The key issue is that we should be debating those big policy issues relating to our transport system, regeneration, planning, housing and local government. The Conservatives are running away from those big issues, for a simple reason: either they have no policy in those areas, or they know that many of them will be required to invest massively over a long period. As their party is committed to cutting investment, they want to run away from the debates and the arguments about those issues of substance.

Andrew Miller: The hon. Member for Bath (Mr. Foster) referred to Cheshire county council. I for one would like it to be abolished very quickly, and I am delighted about the White Paper that was announced today. While it still exists, however, will my right hon. Friend ignore the froth and nonsense that we are hearing and concentrate on some of the things that are going on in the council? There are appalling employment practices, and cuts in services that are affecting my constituents.

Stephen Byers: I know that my hon. Friend has raised his concerns about employment practices in Cheshire county council with my right hon. Friend the Minister for Local Government, and my right hon. Friend and the Department will examine them closely. There is a big job to be done, and we simply want to get on and do it.

John Gummer: The right hon. Gentleman will know that earlier in his period of office I suggested in the public print that we should give him the benefit of the doubt, and not cavil about a number of these smaller incidents. Does he accept that now—[Interruption.]

Mr. Speaker: Order. The right hon. Gentleman must be allowed to put his question.

John Gummer: Does the Secretary of State accept that he told the House that Martin Sixsmith had resigned? He has now told the House that Martin Sixsmith had not resigned. Those are two different positions. Why did he not just come to the House and say "I am sorry"? The House would have accepted that. I will apologise to the House for misleading it by suggesting that the right hon. Gentleman was honest, if he will apologise to the House and admit that he was dishonest.

Stephen Byers: I say with all due respect to the right hon. Gentleman, who also thinks independently about such issues and does not jump on to bandwagons, that if he looks at my statement of 26 February, at the permanent secretary's statement of 25 February, and at the outline of the events of 15 February, he will recognise that my statements have not misled this House.

Michael Trend: I, too, serve on the Public Administration Committee. In his evidence to us, Sir Richard Mottram said—as paragraph 299 of the minutes of evidence makes clear—that he was "very reluctant" to make his personal statement, but that it was "put to" him that he should do so. Did the Secretary of State put that point to him? Did the Secretary of State instruct, ask or encourage Sir Richard to make his public statement, or suggest to him—either directly or indirectly—that he make it?

Stephen Byers: Sir Richard made the statement; he may have been reluctant to do so. [Hon. Members: "Ah!"] I say that because I honestly do not know, but according to the hon. Gentleman that is the evidence that Sir Richard gave to the Select Committee. What I do know is that permanent secretaries are not instructed by their Secretaries of State to make public statements. That is the situation. In answer to the hon. Gentleman's question, there was no instruction by me to Sir Richard Mottram. That is not the way in which relationships between Secretaries of State and permanent secretaries operate.

Gerald Kaufman: Given what my right hon. Friend and the hon. Member for Maidenhead (Mrs. May) have said today, is he aware that, during the local election campaign in Gorton—in which the Conservative party was not simply trounced, but humiliated—no mention was made of the name of Martin Sixsmith? Nor, indeed, was mention made of the name of the hon. Member for Maidenhead—whatever it may be—or of 15, 25 or 26 February. What were discussed were the issues that my right hon. Friend has raised today, rather than those raised by the Conservatives. That is why, as long as the Conservatives carry on in their current direction, Manchester city council will continue to have an overwhelming Labour majority, and we in Manchester will continue to be represented solely by Labour MPs.

Stephen Byers: I look forward to Manchester being represented by my right hon. Friend and my other hon. Friends for many years to come.
	As far as the Government were concerned, last Thursday's local government election results were pleasing to say the least. It is interesting to note that the Conservative Opposition are not mentioning those elections. Throughout the country, Labour held the day in most areas, and gained in many others, which people did not expect.

Andrew MacKay: Do not the many incorrect understandings of key issues during the past year, involving the Secretary of State and his Department, demonstrate carelessness on his part? We have now established that Martin Sixsmith was not lying. Do we believe that the chairman of BMW was lying during the Rover crisis? No. Do we believe that the chief executive of Railtrack was lying? No. The people of this country know what the answer is, and that is why the Secretary of State should resign.

Stephen Byers: When difficult and tough decisions are taken, there are people who disagree with their outcome. The right hon. Gentleman raises two specific issues, and as far as Railtrack is concerned—I have said this in the House before, and I shall say it again—I make no apology for bringing to an end what was a failed Tory privatisation. As far as BMW and Longbridge, in Birmingham, is concerned, I make no apology for saving 6,500 jobs. That was my action, which was not helped by the Conservatives who wanted to sell Birmingham out, to sell Longbridge out and to sell out those 6,500 workers. I make no apology for standing alongside those workers and defending their jobs. If people such as the right hon. Gentleman wish to complain about that, they can do so, but the public expect Ministers to take such decisions on their behalf.

Peter Pike: Do not the simple facts of my right hon. Friend's statement today confirm that the two events of Tuesday this week in no way conflict with his statement on 26 February or the statement the day before by his permanent secretary? It is amazing how the Tories are trying to distract my right hon. Friend from doing his job, but I hope that he gets on with completing the reorganisation of local government finance, which is seen as an important issue in many parts of the country.

Stephen Byers: My hon. Friend is right when he points out that hon. Members should consider the documents and the statements together to see the true picture. He is also right to point out the importance of the statement on the regions White Paper. Since 25 February, we have also announced another initiative to identify nine pathfinder projects for areas of low housing demand, including one in my hon. Friend's constituency of Burnley. Those projects will make a real difference for hard-working people who have been trapped in negative equity because the value of their properties has dropped. Those are the real issues that matter to the people of Burnley and to the people of this country and the issues that I as the Secretary of State will continue to pursue.

David Wilshire: The traditions of this House make it clear that all MPs are honourable people. However, honourable people do not blame everybody except themselves. Honourable people do not hide behind other people. Honourable people do not refuse to say sorry. So why does not the Secretary of State prove me wrong by living up to the best traditions of this House and doing at least one honourable thing—resigning?

Stephen Byers: I say once again to the hon. Gentleman that he should look at the agreed statement of Tuesday this week, my oral statement on 26 February and the statement by my permanent secretary that outlined the events of 15 February. When he has done that, even he will have to recognise that there is no reason why this Secretary of State should resign.

Gordon Prentice: May I follow the point raised by the hon. Member for Windsor (Mr. Trend), because I too am a member of the Public Administration Committee? It was the Cabinet Secretary who advised Sir Richard Mottram to make a statement, and not my right hon. Friend the Secretary of State. What my right hon. Friend has said from the Front Bench is true. I believe it, and the whole House should endorse the version of events that he has described.

Stephen Byers: I welcome that intervention from my hon. Friend, because it clearly shows the way in which Conservative Members are using the issue to make party political points. The fact that a member of the Select Committee partially quoted evidence given to the Committee, without revealing that other evidence had been given by the Cabinet Secretary that he had suggested to my permanent secretary that a statement should be made, reveals much about how the Conservative party is treating this issue.

Patrick McLoughlin: On 26 February, I asked:
	"Will the Secretary of State say whether Mr. Martin Sixsmith was a civil servant in his Department on 22 February?"
	The Secretary of State replied:
	"As I said earlier, Martin Sixsmith offered his resignation, which was accepted, on 15 February."—[Official Report, 26 February 2002; Vol. 380, c. 574.]
	If that is not misleading the House, what is?

Stephen Byers: The hon. Gentleman must look at what was said in the round on 26 February. I was referring—[Interruption.]

Mr. Speaker: Order. I expect better behaviour from the hon. Gentleman. He should apologise.

Patrick McLoughlin: I do apologise. I was trying to give the Secretary of State a copy of what he said.

Chris Mullin: This is very small beer, is it not? Many people outside this place will be wondering what all the fuss is about. It is not as though the Secretary of State has been found in a Paris hotel in the company of three Saudi arms dealers. It is not as though he has accepted money in brown envelopes from Mohammed Al Fayed or been found guilty of committing serial perjury in the High Court. There has been a minor misunderstanding, it has been cleared up and we should move on.

Stephen Byers: It is helpful at times such as this to be reminded of what happened during the time when the right hon. Member for North-West Cambridgeshire (Sir Brian Mawhinney) was chairman of the Conservative party. He seemed to have very little to say about those issues. My hon. Friend is absolutely right. His constituents in Sunderland are concerned about abandoned housing and antisocial behaviour by tenants. Those are the sort of issues that matter to the public, and that is the agenda on which I intend to deliver as Secretary of State.

Norman Lamb: The Secretary of State repeatedly invites us to compare the statement he made in February with the statement he made today. There is a subtle but important difference. Today he says that he had been told that Mr. Sixsmith had agreed to resign. That is something that a person can do while continuing in employment and negotiating a termination package. However, on 14 occasions on 26 February, the Secretary of State stated that Mr. Sixsmith had resigned. That is an important and crucial difference. Is it not scandalous that the taxpayer is now being asked to pay Mr. Sixsmith's hush money in circumstances in which it is clear that the Secretary of State has misled the House?

Stephen Byers: Martin Sixsmith is being compensated in accordance with his employment rights, as is right and proper. I say once again that the hon. Gentleman should look at the statement I have made today, the statement I made on 26 February and the statement made by my permanent secretary on 25 February about the events of 15 February. He will then recognise that I have not misled the House.

Mike O'Brien: Everyone who has followed this issue has known for a long time that Martin Sixsmith disputed the issue of his resignation. That has been public knowledge for a long time. The issue needed to be clarified today, and now that my right hon. Friend has done so will he accept that many people in the west midlands will be appalled by the lynch-mob mentality that has pervaded the Martin Sixsmith issue. They want to know that the west coast main line and transport in the west midlands are the issues on which the Secretary of State is focusing. I am pleased to hear that he intends to do that and to ignore the attitude of the Conservatives.

Stephen Byers: My hon. Friend is right. The agreed statement on Tuesday was the resolution of that dispute, and I welcome that. As my hon. Friend says, we face many problems and challenges in addressing transport in the west midlands.
	I was pleased a couple of weeks ago to visit the passenger transport executive in the west midlands and to look at the issues that it is facing. I believe that we will be able to make real improvements in the transport system in the west midlands, as well as in the rest of the country.

John Wilkinson: May I remind you, Mr. Speaker, that, during business questions on 26 February, which followed the Secretary of State's statement, I asked whether the record of the House was accurate? I also asked whether the integrity of the House of Commons was not at stake, as the Secretary of State's statement explicitly stated that Mr. Sixsmith had resigned. After the Secretary of State's statement, Mr. Sixsmith went on television to say that he had not resigned. Was not the Secretary of State deliberately using parliamentary privilege to impugn the professional competence of a civil servant who could not answer back? Instead of Mr. Sixsmith being asked to resign, should not the Secretary of State do so voluntarily?

Stephen Byers: The statement agreed between my Department and Mr. Sixsmith addresses some of the matters referred to by the hon. Gentleman. I repeat that hon. Members should read in full my statement on 26 February. They will then see that I have not misled the House.

Several hon. Members: rose—

Mr. Speaker: Order. We must move on to the business statement.

Roger Gale: On a point of order, Mr. Speaker.

Mr. Speaker: The hon. Gentleman should know that points of order are taken after statements. We are about to hear a statement from the Leader of the House.

Business of the House

Robin Cook: The business of the House for next week will be as follows:
	Monday 13 May—Second Reading of the National Insurance Contributions Bill.

John Bercow: Excellent.

Robin Cook: I thank the hon. Gentleman. I am glad that I have the confidence of the House on that point. I hope that the hon. Gentleman will vote for the measure.
	Tuesday 14 May—Motion to approve the First Report from the Modernisation of the House of Commons Committee, on Select Committees.
	Motions relating to the Ninth Report from the Standards and Privileges Committee, on a new code of conduct and guide to the rules.
	Wednesday 15 May—Opposition Day [13th Allotted Day]. Until 7 o'clock there will be a debate entitled "Post Office Closures and Royal Mail Delivery Services" followed by a debate on the environment. Exact title to be confirmed. Both debates will arise on a motion in the name of the Liberal Democrats.
	Thursday 16 May—Progress on remaining stages of the Adoption and Children Bill.
	Friday 17 May—The House will not be sitting.
	The provisional business for the week after will be:
	Monday 20 May—Conclusion of remaining stages of the Adoption and Children Bill.
	Tuesday 21 May—Opposition Day [14th Allotted Day]. There will be a debate on an Opposition motion. Subject to be announced.
	Wednesday 22 May—Consideration of Lords Amendments to the National Health Service Reform and Health Care Professions Bill.
	Thursday 23 May—Remaining stages of the State Pension Credits Bill [Lords].
	Friday 24 May—Motion on the Whitsun recess Adjournment.
	The House will wish to know that on Tuesday 14 May 2002, there will be a debate relating to the pet travel scheme in European Standing Committee A.
	[Tuesday 14 May 2002:
	European Standing Committee A—Relevant European Union documents: 11596/00 and 12488/01; Rabies: restrictions on the non-commercial movement of pet animals. Relevant European Scrutiny Committee Reports: HC 23-xxviii (1999–2000); HC 28-iv (2000–01); HC 152-iii; HC 152-xxi; HC 152-xxiv and HC 152-xxvi (2001–02).]

Eric Forth: I am most grateful to the Leader of the House for giving us the business details. The right hon. Gentleman is rightly renowned for his respect for the House and for its conventions and proprieties. You will recall, Madam Deputy Speaker, that the right hon. Gentleman recently came to the House, willingly and quickly, to apologise after he had been grievously misled by a Government Department. He promptly came to apologise, and the House understood and respected what he did.
	Has the Leader of the House recently had a word with the Secretary of State for Transport, Local Government and the Regions? If not, will he be kind enough to take the Secretary of State into a quiet corner and give him a lesson about the proper relationship between Ministers and the House of Commons, and about decency and honesty—in politics and in the House?
	I ask that because I want the Leader of the House to tell us when he will allow time for a debate on the censure motion, in the name of Her Majesty's official Opposition and relating to the Secretary of State for Transport, Local Government and the Regions, that is due to appear on the Order Paper. Today, we heard a performance from the Secretary of State that was completely inadequate and almost contemptuous. It is self-evident that we need an opportunity to have a proper debate so that the matter can be much more thoroughly examined, and resolved. That certainly would be in the interests of the House, and perhaps of the Secretary of State.
	I have described the attitude to the House of the Leader of the House, which I respect. When will he provide an early opportunity for the Opposition's censure motion to be debated, dealt with and resolved?

Robin Cook: I am grateful to the right hon. Gentleman for reminding the House of the statement that I made to the House to correct the record. It may be relevant to consideration of the events about which we have just been hearing, but I should inform the House that the initial statement to the House on the matter about which I was subsequently obliged to correct the record was a line cleared by Mr. Martin Sixsmith. I used precisely the line that had been agreed by him and the Prime Minister's official spokesman. In view of the current unreliability of the line that Mr. Sixsmith approved, I have my own views about his reliability.
	I have heard nothing in the past hour to suggest that my right hon. Friend the Secretary of State for Transport, Local Government and the Regions did anything other than to put to the House, honestly and fairly, what was put to him by his Department, specifically by his permanent secretary. The words that he used were identical.
	I do not doubt the right hon. Gentleman's commitment to the House. He is a genuine parliamentarian—

John Bercow: A great parliamentarian.

Robin Cook: That is possibly going a little far, but he is a genuine parliamentarian. I have frequently said to the House that, if we want to establish public respect for the House and to get people to participate in elections to the House, we must demonstrate that we are less concerned with party political point scoring than with the real issues in people's lives. I do not think that the last hour will have gone any way to convincing the public of that. I heard absolutely nothing new. If I may say so, I believe that I could have written the speech by the Opposition spokesman on transport matters in five minutes over breakfast. Indeed, I rather suspect that I should have made a better job of it.

Paul Tyler: Liberal Democrat Members share the concern of Conservative Members, and do not consider that we have received straight answers to straight questions this afternoon. We will examine our Opposition day option next week and see whether it will provide an opportunity to give another airing to these matters.
	In the meantime, will the Leader of the House look again at the statement that he made on Tuesday to the Wicks committee, the Committee on Standards in Public Life? He said:
	"I can announce to you one change on an issue which you raise in paragraph 3.42 of your consultation paper. In the light of experience, the Government has resolved that the following addition should be made to the Ministerial Code.
	'Ministers must also comply at all times with the requirements which Parliament has itself laid on them as Members, including in particular the codes of conduct for their respective Houses.'
	I believe this explicit requirement will reinforce the status of the Members' Code of Conduct, and underline the Government's commitment to its observance."
	In the light of the exchanges earlier this afternoon, and the very real concern among hon. Members of all parties about the behaviour of Ministers, will the Leader of the House give us an opportunity, in Government time, to discuss the changes to the ministerial code so that we can examine the code in the round?

Robin Cook: I think that the hon. Gentleman's response to my announcement on Tuesday is a trifle churlish and below his high standards of generosity, as it was he who originally raised the matter at business questions. I had hoped that my response would bring at least half a welcome from the hon. Gentleman, for doing what he had asked of me.
	The hon. Gentleman has raised the question of the ministerial code a number of times. I am sure that hon. Members will find opportunities to do so. The hon. Gentleman was right to point to where the opportunity lies in respect of the censure of a member of the Government. In past years, when I was a member of the shadow Cabinet, I spent many happy hours discussing which member of the Conservative Cabinet we would censure that week. The appropriate place for such a debate is in Opposition Supply day time. The hon. Gentleman has the distinction of being the last person to move such a motion in the House, when he moved for the censure of the Minister with responsibility for agriculture in the then Conservative Government. We found opportunities to criticise him on many occasions. However, I commend the hon. Gentleman on his speech on that occasion; it was about substance, policy and issues that affected constituents, not the flim-flam that we have been forced to listen to for the past hour and which, I am bound to say, would be an egregious waste of the House's time if we had to return to it again.
	Finally, as the hon. Gentleman mentioned my openness to the Wicks committee, may I take the opportunity of repeating what, for me, was the central point of my observation to the committee? It is worth repeating since, characteristically, very few press reports picked it up the next day. Over the past six years, barely half of 1 per cent. of Members of the House of Commons have been censured for misconduct or misregistration. We were right to censure those Members for failing to meet our high standards, but we are entitled to point out to the press and the public that they were rare exceptions, not the generality of the conduct of the House of Commons.

Gwyneth Dunwoody: Is my right hon. Friend aware that one way in which the House of Commons can reconnect with the public is to address the questions that concern them very deeply? I refer in particular to the London underground. My right hon. Friend will be aware that the contracts were signed yesterday for a public-private partnership which in my view is seriously flawed.
	The real problem is that the Government have said that because we discussed this matter two years ago, we no longer need to discuss it. May I ask my right hon. Friend to reconsider that very urgently? It is no use the House of Commons lecturing others on the need for openness if we will not debate matters of importance on the Floor of the House.

Robin Cook: My recollection of the past two years is rather different from that of my hon. Friend. I recollect our having exchanges on this matter several times. Indeed, it is only three months since there was a full statement to the House, at the time when the contracts were being let. The signing of the contracts is a natural and inevitable consequence of that statement. However, I am sure that the House will find ways of ventilating the issue and raising it again. For myself, I think that no local government contract in modern history has been more ventilated in the House of Commons.

Christopher Chope: Can the Leader of House organise an early debate on compensation arrangements for civil servants? The normal maximum that an ordinary mortal can receive from an industrial tribunal for unfair dismissal is £50,000, yet we now find out that £200,000 was paid to Mr. Martin Sixsmith. Surely that needs explanation. We, as the custodians of the public purse, should have a chance to probe the Executive on whether the difference between £50,000 and £200,000 was the price of Mr. Sixsmith's silence.

Robin Cook: My right hon. Friend the Secretary of State for Transport, Local Government and the Regions dealt with this question perfectly adequately only half an hour ago. The settlement is within the terms of Mr. Sixsmith's terms and conditions. It was carried out by lawyers on both sides, without ministerial intervention.
	Finally, so that the hon. Gentleman does not muddy the waters further, Mr. Martin Sixsmith has not, of course, been dismissed, whether fairly or unfairly. He has resigned—fairly, I presume.

Mike O'Brien: Can we have an early debate on motorway compensation so that I can raise the concerns of my constituents who live along the construction route of the M6 toll road and have found that compensation is to be delayed until 2005 or thereabouts? In the meantime, their houses are blighted and there is no compensation available for the disturbance. These issues need to be debated.

Robin Cook: I cannot promise my hon. Friend a full day's debate on that topic in the near future, but there are a number of ways in which he can raise his constituents' concerns. I will happily undertake to ensure that his observations are passed to the Secretary of State for Transport, Local Government and the Regions.

Julian Lewis: May I express my surprise to the Leader of the House that he should have chosen, on this of all days, to impugn the reliability of Mr. Sixsmith when we have heard this morning that Mr. Sixsmith was telling the truth when he said that he had not resigned and that the Secretary of State was not doing so when he said that he had? May we have a debate in Government time on the use and abuse of privilege in the House? In that way, right hon. and hon. Members will have an opportunity to see what recompense there is for people—whether they be sacked spin doctors or permanent secretaries of Departments who get landed with the blame—when they are impugned under the protection of parliamentary privilege by Secretaries of State who ought to shoulder the responsibility themselves and resign because of misconduct, misdemeanours and misinformation from their Department?

Robin Cook: I have a little difficulty unravelling from the hon. Gentleman's periphrasis exactly who he is talking about. If he is referring to the permanent secretary at the Department for Transport, Local Government and the Regions and looks at the permanent secretary's statement of 25 February, he will see that the permanent secretary uses precisely the same language as was subsequently used by the Secretary of State to the House. As the Secretary of State has said to the House, if we impugn his statement to the House we also, logically, impugn the statement of the permanent secretary. In that case, the hon. Gentleman will then have to accept that he is also attacking the permanent secretary.
	Finally, on whether I impugned Mr. Sixsmith, I answered the question that I was asked. I pointed out that the reason why I had to retract my statement on that occasion was that I had acted on the advice of Mr. Sixsmith.

Ann Clwyd: May we have a further opportunity early next week to discuss the situation in the middle east? Many questions need to be answered: why was a United Kingdom-sponsored resolution to have a commission of inquiry into Jenin thwarted at the United Nations? What went wrong at the UN Security Council? Secondly, and most importantly, what will happen if there is a further Israeli military attack on Gaza? What will the world do if that takes place, and what role will the United Kingdom play to try and bring about a peace in that area?

Robin Cook: My hon. Friend raises a serious issue of deep concern to many in the House and many of our constituents. I assure her that the British Foreign Office is fully engaged in trying to find ways of defusing the situation and find a way back to the negotiating table. I congratulate all those who have been involved in finding a solution to the effective house arrest of Chairman Arafat in Ramallah and in the progress that is being made, slow and painful though it is, on relieving the siege of the Church of the Nativity in Bethlehem. It is very important that the outside world does all that it can to make sure that we continue to make progress.
	I think that everybody in the Chamber will deplore the act of terrorism that took place the other day and will greatly sympathise with the relatives of those who were killed in that bomb attack. I hope that everyone in Israel will also reflect that the event shows that the actions within the west bank are not eliminating suicide bombers. The only way in which we can fight and successfully defeat terrorism is to offer a just and peaceful way forward for all the Palestinian people, which will only be found at the negotiating table.

Angela Browning: Could the Leader of the House arrange for an urgent statement by the Minister responsible for S.I. 843, Animal Health England? I served on the Committee stage of the Animal Health Bill, which currently lies in another place; it has been defeated in another place and is therefore unable to progress. However, this statutory instrument, some 221 pages long, was first made and laid before Parliament during the easter recess, coming into force on 19 April. It seeks to replicate many of the issues on which the Bill was defeated in another place.
	I see this as legislation by stealth. The statutory instrument involves giving additional powers to Government to enter property and slaughter owners' animals without their consent. I believe that this is a contempt of the House, and we should have a full explanation of how it came into being.

Robin Cook: I am glad that the hon. Lady has raised this question because it gives me an opportunity to put right some of the press reports concerning the regulations. The only powers for entry and slaughter contained in the regulations are those which already exist in statute. There is no extension of those powers. The only new matter in the regulations is the power to carry out wider testing to try to establish whether there have been transmissible forms of BSE. That form of testing does not involve the slaughter of live animals but the examination of dead carcases. There is no extension of the power to slaughter in the regulations.

Alice Mahon: May I add my voice to that of my hon. Friend the Member for Cynon Valley (Ann Clwyd) in calling for an urgent debate on what is happening in the middle east? As we sit here, the Israeli army is massing tanks, troops, helicopter gunships and bulldozers on the borders of Gaza. It is clear that Ariel Sharon is going to inflict bloody revenge on civilians in Gaza, as he did in Jenin. We all condemn the latest suicide bombing—of course we do—but my right hon. Friend must realise that we cannot sit by and watch another Jenin. We should at least hold a debate.

Robin Cook: I understand my hon. Friend's last point. In fairness to the Government, we are very aware of the concern in the House, as we have shown in the past by giving the House opportunities to hear statements and to explore these matters. Foreign Office Question Time will take place next Tuesday, but I shall continue to keep the situation under review, as, I am sure, will my right hon. Friend the Foreign Secretary.
	I fully share my hon. Friend's concern that any massive military retaliation for the terrorist action of the other day is not likely to produce a lasting peace or a cessation of terrorist activity. We shall secure that only by returning to the peace table and by ensuring that we find a path forward that is based on security for the people of Israel and justice for the people of the Palestinian territories.

Roy Beggs: I welcome the announcement that there will be a debate next week on the new code of conduct and guide to the rules for Members of Parliament. However, does the Leader of the House agree that neither the current code of conduct nor the proposed new code would deal with any Member who is associated with an organisation involved in terrorism in this country or who assists such activity in another country? If Sinn Fein-IRA is proven to have been involved in the break-in at Castlereagh police station, in assisting FARC guerrillas in Colombia or in carrying out a recent murder in County Tyrone, what action does the Leader of the House propose or recommend should be taken against the four Members of the House who represent that organisation?

Robin Cook: It is important to keep a clear distinction between the code of conduct, which governs our behaviour as Members of Parliament in the fulfilment of our parliamentary duties, and other matters where there is the same duty on Members of Parliament as on any citizen to obey the criminal law. There is nothing in the parliamentary code of conduct that seeks to subvert or replace the criminal code. If a Member of Parliament were to have criminal knowledge of a specific criminal or terrorist activity, they should be visited with the full majesty of the law. I support that. Next week, we shall be debating those measures that do not involve criminal activity but on which it is important to establish high standards for our conduct as Members of Parliament, to ensure that we have the clearest possible professional ethics.

Vernon Coaker: Will my right hon. Friend find time for a debate to celebrate women in sport? Yesterday evening, many of us had the opportunity of meeting the England women's rugby union team who are off to their world cup on Saturday. When another world cup is in the news, is it not important that we recognise the tremendous contribution that women make to sport, and that we wish the England women's rugby union team all the best in their world cup in Barcelona?

Robin Cook: I am sure that my hon. Friend passed a very enjoyable evening and I am happy to join him in his congratulations to the team, and to wish them well. On behalf of all of us, I wish them success.

Michael Fabricant: May we have a debate entitled "new Labour, new standards in the House of Commons", when we can learn that questions of integrity and honesty are mere "flim-flam", as the Leader of the House just said, and that Ministers can come to the Dispatch Box and claim that misleading the House by saying something that is an untruth is allowed if it is taken in the round?

Robin Cook: On the many occasions when I advise the House to rise above party political point scoring, I never imagine that the hon. Gentleman will pay any attention.

Alan Hurst: My right hon. Friend will be aware of the large sums of public money spent by both national and local government on maintaining bus services in rural areas and small towns. Nevertheless, the devil is this: private bus operators frequently withdraw a service only for it to be replaced by a subsidised service and, as a consequence, such bus operators run only profitable services and we—the public authorities—run only loss-making services. As a result, costs rise and services often diminish. Will my right hon. Friend find time for a debate on that important subject?

Robin Cook: My hon. Friend raises a matter of which I have personal knowledge from my own constituency. The real problem is the difficulty of securing public transport and bus services in places where they may not be commercially profitable or, indeed, at times of the day when many of the vulnerable people in our community want to travel but when, because they are not peak times, services are not available. My hon. Friend is right to draw attention to the dilemma in which that leaves local authorities, and I shall certainly bear in mind his suggestion that there should be a debate on the subject. I am sure that an opportunity will arise for us to discuss these matters generally, although I cannot predict the date at present.

John Wilkinson: As we are not to have a debate on the middle east, will the Leader of the House at least ensure that the Foreign Secretary or the International Development Secretary comes to the House to explain why European Union funds go to finance members of the Palestinian Authority under Yasser Arafat at a time when it would seem that terrorism is being prosecuted by that very organisation? At the very least, should not the European Union stop such funding until violence stops, or is the United Kingdom powerless to prevent British taxpayers' money going to such purposes?

Robin Cook: I wonder whether the hon. Gentleman has paid any attention whatever to what has been happening in the Palestinian territories during the past month or, indeed, during the past five years. Income in those territories has gone down by a third over the past five years. During the past month, large parts of the infrastructure have been smashed, with total damage from that destruction amounting to well over £200 million. People in the Palestinian territories are desperate. I do not believe that it would assist the peace process at all if the European Union were to stop providing humanitarian and reconstruction aid for those people. Furthermore, the hon. Gentleman should be careful not to spread false allegations that European funds support terrorism. The European Union has made it plain that it has carefully audited the trail of money and that, to its knowledge, none of it has ever been used for terrorist activities.

John Smith: Will my right hon. Friend join me in paying tribute to VARDA—the Victims of Air Related DVT Association—and the Aviation Health Institute for raising public awareness of the problem of deep-vein thrombosis in air travel? Is he aware that, this afternoon, in the precincts of the Palace, they are launching a report which shows that 43 per cent. of the people who have died from deep-vein thrombosis were aged between 20 and 40, which almost certainly shows that the problem is directly related to the unique conditions of flying? Given that the Government lead the world in calling for and supporting international research into the problem, does my right hon. Friend share my sheer disbelief that the Australian Government refuse to fund the World Health Organisation research? They are placing that research at risk, yet they stand to benefit most from it. Will my right hon. Friend use his good offices to try to persuade them to change their mind?

Robin Cook: I am happy to congratulate those organisations on their work on drawing attention to the matter, although I do not think that anyone has done more than my hon. Friend to draw attention to the problem of deep-vein thrombosis. I fully agree about the importance of our carrying out research to ensure that the necessary steps are taken to minimise the risk of deep-vein thrombosis.
	I do not want to get into the business of criticising a foreign Government about their attitude to that or many other matters. I am proud of the fact that Britain has taken the issue seriously and is providing leadership. I hope that, in time, other countries will follow that lead.

Anne McIntosh: On 16 January, I put a question to the Secretary of State for Work and Pensions on the number of claimants for incapacity benefit in York and North Yorkshire. I received the figures in a written answer on 6 March. However, this week, I received a letter from a Minister in the Department stating that the figures were incorrect and that he had published revised figures. Will the Leader of the House confirm that, in such circumstances, it is customary for the Minister in question to apologise and explain why the figures were incorrect, whether they were higher or lower than the original figures, and why the revised version was necessary.

Robin Cook: I did not hear anything in what the hon. Lady said that seemed in any way improper or in breach of ministerial duty. If the Minister discovered that the figures provided to him were in error, he was right to correct the record. There is a duty on him to do so. I am confident that the previous figures were provided in good faith. Given the many thousands of questions that have to be answered—some of which are highly statistical—it will occasionally be necessary to correct figures. I gently suggest that such situations were not unknown when the hon. Lady's party was in government.

Malcolm Savidge: Clearly, the whole House deplores the suicide bombings that took place a couple of days ago in Israel and Pakistan, but the stark contrast is surely between the expected responses. It is inconceivable that France would engage in reprisal killings or the wanton destruction of poor people's homes. May I endorse other hon. Members' requests that we should have an early debate on the middle east and its wider implications? If Sharon continues to exercise a licence to kill and to block the Jenin inquiry, that could surely undermine the United Nations in the way that the failure to act effectively over Japan/Manchuria and Italy/Abyssinia undermined the League of Nations in the last century, leading eventually to war.

Robin Cook: Of course I hear the very strong feelings among a number of Members who have taken part in the exchanges on the situation in the middle east, and they are absolutely right to be deeply concerned about what may be the wider implications not only for the region—the current situation in the middle east is a major threat to stability of the wider region—but for the standing and status of the United Nations, which, initially in response to an Israeli view, offered an inquiry into Jenin only to have that inquiry refused by the Israeli Government. I hope that a way forward will be found to ensure that the UN can play a constructive and real role. I assure my hon. Friend that the British Government are doing everything that an outside power can possibly do to try to bring both sides to the negotiating table.

Michael Moore: The Leader of the House will be aware that today is Europe day and that the future of Europe is currently being considered in the convention chaired by the former President of France, Valéry Giscard d'Estaing. Twice in recent weeks, the Minister for Europe has made the Government's position on the future of Europe clear to members of that convention. Will the Leader of the House tell us when hon. Members will have an opportunity to debate the Government's proposals for the post- enlargement period from 2004? Will he also tell us what arrangements will be made to allow the parliamentary representatives from the House—the hon. Member for Birmingham, Edgbaston (Ms Stuart) and the right hon. Member for Wells (Mr. Heathcoat-Amory)—to report on their contributions to that convention?

Robin Cook: I have told the House before that we are examining how we may provide an appropriate forum for the House's representatives to the convention—as well as the Minister for Europe, who represents the Government—to report to hon. Members. I hope soon to be able to announce those proposals.

John Cryer: Following on from the question asked by my hon. Friend the Member for Braintree (Mr. Hurst), my right hon. Friend may be aware that London bus workers lobbied Parliament yesterday. London is different from the rest of the country because an element of regulation was maintained after privatisation, but a route-based franchising system is used. That is a direct threat to the standard of services across Greater London because the system operates to bear down on costs, which screws down wages, pension rights, terms and conditions and even, in some cases, the condition of the buses that operate on those routes.
	My constituency is more or less on the border between the regulated part of the bus network and the unregulated part which exists in Essex. I have been involved in several campaigns to save various bus services. So when we have a debate on bus services in Britain, could it extend to the regulated part in London, not just to the part outside that area?

Robin Cook: My hon. Friend will of course be aware that pay for bus drivers and other staff is a matter for the companies and unions concerned, but the companies negotiating those wage settlements with their staff are, in part, subsidised by Transport for London. The Government's grant for Transport for London has rocketed in recent years. Indeed, it recently went up by 100 per cent. My hon. Friend may wish to ask Transport for London what has become of all the increased investment that we have made and why it has resulted in such a difficult situation for some of the staff who provide the service.

John Hayes: The Leader of the House will have read reports to the effect that political advisers are being asked to amend, or tamper with, Ministers' answers to parliamentary questions. I am sure that he will agree—as will you, Madam Deputy Speaker—that parliamentary questions are one of the crucial ways in which Members from both sides of the House can hold the Executive to account and gain information on behalf of their constituents. If there is no truth in those reports, I am sure that the Leader of the House will want to let the House know, and we will all be entirely happy and very satisfied. If there is any truth in those reports, perhaps he will arrange for a statement to be made to explain the full detail of that further imposition on the rights of parliamentarians by the Executive.

Robin Cook: The right of Parliament is to receive full and accurate answers, which is set out in the ministerial code, and Ministers are accountable for those answers. I am all in favour of Parliament's being rigorous and vigorous in ensuring that Ministers are held to account for the answers that they give. In those circumstances, it is not unreasonable for Ministers to seek advice from those in their own offices.

Gillian Merron: May I tell my right hon. Friend that, last Thursday, Councillor Jim Speechley, the Tory leader of Lincolnshire county council, was in court facing eight criminal charges and that the very next day, he was found guilty in an independent public interest report of intimidation and being behind illegal payments totalling some £750,000? I am sure that my right hon. Friend will share my immense concern that, last night, the same councillor was re-elected as Tory leader of Lincolnshire county council. Will my right hon. Friend find time to debate standards in local government so that I can have the opportunity to raise the very real and pertinent concerns of my constituents, who, after all, rely on the political management of the authority to deliver essential services to them?

Robin Cook: I heard what my hon. Friend said with interest. I am very pleased that the business statement has given her the opportunity to complete the intervention that she attempted earlier this afternoon. I certainly take a dim view of the conduct in local government that she describes, and I very much hope that the electors of Lincolnshire will find a happier and better outcome in future. [Interruption.] If the right hon. Member for Bromley and Chislehurst (Mr. Forth) wants to help to raise standards in local government, the best way for the Conservatives to do so would be to encourage Dame Shirley Porter to return to answer the very grave and serious charges that are still outstanding from the period when she was a senior Conservative leader in London and a close friend of the then Conservative Prime Minister.

Annabelle Ewing: The Leader of the House will be aware of the concerns that have been raised about the operation of removal centres for asylum seekers, such as Dungavel, but he may not be aware that a cross-party delegation is to visit Dungavel a week tomorrow. If concerns arise further to that visit, will he try to find time to ensure that those matters can be debated in the House?

Robin Cook: I am advised that that delegation will be the third cross-party delegation to visit Dungavel in recent times, which shows the commitment of the authorities to transparency. I understand that there are deep concerns. Indeed, as a Scottish Member, I have seen them expressed in the Scottish press. Opportunities are open to the hon. Lady and her colleagues to raise that matter in the House if they wish to do so—it would seem to be an appropriate issue to pursue in Westminster Hall.

Fiona Mactaggart: The Leader of the House has been very patient with my frequent questions about the future of the reform of the second Chamber. I am concerned that there are still not very clear smoke signals about where the process is going. I wonder whether we might have a discussion shortly so that we can see the future shape of the Government's proposals and so that hon. Members can discuss them.

Robin Cook: I am not sure that I can promise smoke signals. I do not really think that they would help us to shed light on the topic. My hon. Friend congratulates me on my patience. She must be patient for a little longer: her patience may not be exhausted.

Henry Bellingham: The Leader of the House may recall that I raised the issue of Powderject and the smallpox vaccine last week. Is he aware that there have been some new developments? First, it has been announced that the chief executive officer of Powderject, Paul Drayson, has given another £50,000 to the Labour party.
	Secondly, we know that, having paid £32 million by Her Majesty's Government for the contract, Powderject subcontracted the work to Bavarian Nordic for the sum of 17.5 million euros—a profit of £22 million. Bavarian Nordic, however, went on to subcontract the work, as we now know, to IDT, the German company, for less than 10 million euros. In other words, there could have been a saving to the taxpayer of £28 million.
	The Leader of the House said last week that it did not matter what Powderject did with the contract having won it. Surely, if we had had an open, competitive tender, we could have gone straight to the east German company and saved £28 million. The Labour party has gained £100,000 out of this and the taxpayer has lost £28 million.

Robin Cook: Business questions would not be complete without the hon. Gentleman raising a question about Powderject. I anticipated that he might ask about it again today, and I am in danger of becoming a walking expert on the Powderject contract. First, it was known from the start that Bavarian Nordic would be the company that would receive the work and provide the vaccine. Indeed, right from the start, Bavarian Nordic made it plain that Powderject would be its chosen supplier through the United Kingdom. There is no evidence that the contract would have cost any less had we dealt directly with Bavarian Nordic, had Bavarian Nordic been willing to deal with us.
	Secondly, I remind the House that five companies bid for this tender. Of the five, only the Powderject/Bavarian Nordic tender could provide us with the vaccine that we needed in time—by the end of the year. It was on that basis, and solely on that basis, that it won the contract.

Kevin Brennan: On Select Committee modernisation, which my right hon. Friend mentioned in his statement, will he join me, as a member of the now ubiquitous Public Administration Committee, in welcoming the Prime Minister's historic decision to appear before the Liaison Committee? Does he agree that the House, as much as the Prime Minister, will be under the spotlight when that happens? Does he agree that the Prime Minister appearing in front of a Committee of 34 members does not necessarily show the House in its most modernised light?

Robin Cook: I appeared, at length, before the Liaison Committee yesterday, and we had a consensual and friendly exchange of views. One of my proposals had been to reduce marginally the size of the Liaison Committee, which I discovered was not welcome with the Liaison Committee, which then produced a report that said that the number of members should stay the same. Yesterday, I accepted its view that it should stay at the same number, and was much entertained that some members of the Liaison Committee immediately expressed disappointment that I had not rejected their recommendations.
	This matter is in the hands of the Liaison Committee, and it must address it. I know from exchanges yesterday that it is also conscious that this will be a very high-profile occasion, and that it will also be under the spotlight. It is important that that exchange—which will be significant in improving the accountability of the Government to the House—should go forward with dignity, and there should be a robust but, nevertheless, civilised exchange on the policy issues, of which many Chairs of Select Committees and the Liaison Committee have a detailed knowledge and which they will want to explore in detail.

Points of Order

Michael Trend: On a point of order, Madam Deputy Speaker. Can you advise me how to correct a false impression given to the House earlier by the hon. Member for Pendle (Mr. Prentice)? I have tried to contact him, but, regrettably, I have not been able to do so in time. The problem arises from an exchange with the Secretary of State for Transport, Local Government and the Regions, and it matters because it touches on the careers of senior public servants in this country who are not able to defend themselves in public and who often serve the country for a very long time and very loyally. They have been dragged into this matter, and the very least that we can do is to quote their words correctly.
	I quoted precisely from the record in my question of the Secretary of State. From memory, the hon. Member for Pendle said that the Secretary of the Cabinet had told Sir Richard Mottram to make a personal statement. When I asked the Secretary of the Cabinet, Sir Richard Wilson, whether he had instructed or told Sir Richard Mottram to make a statement, he said:
	"He was not acting on my instruction".
	Clearly, the two men had discussed the matter because they were creating an important precedent for the civil service, but Sir Richard Mottram was not acting on instructions. The problem arises because the Secretary of State chose not to answer the question that I asked. Characteristically, he answered a different question, and that is his problem. We should not, however, drag civil servants into debate in the House in such a way unless we can be very precise. I would like to know if there is any way in which this can be put right.

Madam Deputy Speaker: That is not a point of order for the Chair, but the hon. Gentleman's comments are now on the record.

Crispin Blunt: On a point of order, Madam Deputy Speaker. In the course of the Deputy Prime Minister's prepared statement, he made a reference to Conservative party policy on devolution of institutions in Northern Ireland that was wholly inaccurate. It is not a matter of debate but a matter of record that the Conservative party supported the Belfast agreement and continues to do so. It therefore continues to support the devolved institutions. Could you advise the House and the Deputy Prime Minister as to what would be the most appropriate way for him to come to the House to correct the record? I hope that that will be an opportunity for the Deputy Prime Minister to set an example to other Ministers.

Madam Deputy Speaker: Again, that is not a point of order but a point of debate. The hon. Gentleman's comments are on record.

Angela Browning: On a point of order, Madam Deputy Speaker. In response to me just now, the Leader of the House indicated that he understood that S.I. 843 dealt only with the carcases of animals. That is not the case. Part 5 deals specifically with live animals. The statutory instrument extends the regulations on transmissible spongiform encephalopathies in a way not seen previously. Indeed, some sections deal with the Minister's right, after appeal, to withdraw the notice of intended slaughter. This statutory instrument, which has been put through the House in the most covert way, replicates a large portion of a Bill that lies in another place. The Government therefore felt that primary legislation was needed. I fail to understand why the Government, without proper consultation with the industry or veterinarians, and without proper scrutiny by the House, are now seeking to use the secondary legislation route when, only a few months ago, Ministers told us that they urgently needed to pass the measure through primary legislation. I urge that we have an opportunity to question the Minister responsible before it is too late, and it is past the date by which we have an opportunity to make representations.

Madam Deputy Speaker: I am in no position to adjudicate on what the hon. Lady or the Leader of the House has said. I suggest that she contacts the Legal Services Office to see if her interpretation is correct.

Eric Forth: On a point of order, Madam Deputy Speaker. Following these exchanges, could you ask Mr. Speaker whether consideration could be given to providing a routine extension to Question Time to allow time for correction of inaccurate statements by Ministers? It appears that serious inaccuracies are arising frequently in Ministers' statements, and it seems appropriate that they are given an earlier or an immediate opportunity to correct what they have said wrongly to the House. Perhaps Mr. Speaker could consider offering the House that opportunity so that there is not a long delay between the original inaccurate statement and the correction, if we ever get the correction at all.

Madam Deputy Speaker: I am sure that the right hon. Gentleman will appreciate that that is the whole purpose of being able to ask questions and raise points on statements.

NATIONALITY, IMMIGRATION AND ASYLUM BILL (PROGRAMME) (No. 2)

Motion made, and Question put forthwith, pursuant to Order [28 June],
	That the Order of 24th April (Nationality, Immigration and Asylum Bill (Programme)) be amended by the substitution in paragraph (3) (proceedings in Standing Committee) of the words 'Tuesday 21st May' for the words 'Thursday 16th May'.— [Mr. Kemp.]
	Question agreed to.

Orders of the Day
	 — 
	Finance Bill

(Clauses 4, 19, 23, 26 to 29, 87 to 92, 131 and 134, and Schedules Nos. 1, 5 and 38)
	Considered in Committee [Progress 8 May].

Clause 89
	 — 
	Controlled foreign companies and treaty non-resident companies

Howard Flight: I beg to move amendment No. 34, in page 63, line 33, at end insert—
	'(iii) has otherwise been resident outside the United Kingdom and not resident in the United Kingdom for a period of three years.'.
	The clause would extend the regime for controlled foreign companies—CFCs—to parent companies that emigrate from the United Kingdom after March this year so as to protect the tax profits of their overseas subsidiaries in certain circumstances. Its objective is to prevent the abuses that could flow from the new substantial shareholders exemptions in other parts of the Finance Bill. Non-UK subsidiaries will have to demonstrate that they are not CFCs and will pay UK tax if they cannot meet the exemption requirements.
	Will the Economic Secretary tell us how practical the arrangements will be and how the Revenue intends to operate them? Let us suppose that a company that is UK resident or UK incorporated moves its central management to Holland or to Germany—both probably have more attractive taxation arrangements for multinationals—and let us suppose that it has a subsidiary in Hong Kong. That subsidiary might meet the requirements of the equivalent Dutch or German CFC rules, but not those of the UK. As a result, the Hong Kong company might be liable for tax in the UK. That is extraordinary, because a German-resident company could complete UK returns in respect of its Hong Kong subsidiary.
	The point should also be made that emigration does not always take place for tax-motivated reasons. In the global world in which we live, the UK obviously needs to be tax competitive to attract and retain the headquarters of multinational companies. The more European Union member states compete, the more that will become an issue, but companies' motivation is not necessarily fiscal.
	The clause will treat companies that emigrate as though they are UK tax resident for ever. There is prima facie legal argument that the provision should lapse after a certain period, and the amendment, on the suggestion of legal advice, proposes that the provision should lapse after three years.

Ruth Kelly: I thank the hon. Member for Arundel and South Downs (Mr. Flight) for the measured way in which he moved the amendment. I note that he made general points about the purpose and appropriateness of the clause, so I hope that, by explaining its purpose, I shall be able to reassure the Opposition about the detail and persuade them that the amendment is wholly inappropriate.
	Clause 89 is part of the package of measures that provides for an exemption from tax for the gains and losses made by companies on the disposal of substantial shareholdings. That package is being introduced to enable UK-based companies and groups to restructure flexibly and rapidly in response to emerging global opportunities without facing the prospect of a large tax charge. The clause updates the existing protection against companies artificially leaving the UK and will maintain existing defences against abuse following the introduction of the widely welcomed substantial shareholdings exemption.
	The updated protection affects only one specific—and rare—type of company: one that is resident for tax purposes both in the UK and another country but, for the purposes of a tax treaty, is treated as resident outside the UK. In practice, the protection will bite only where the company is treaty non-resident for mainly fiscal rather than commercial reasons—in other words, in essentially contrived, inherently artificial situations in which companies are unlikely to find themselves by chance. When the protection applies, UK companies that have become treaty non-resident through such artificial contrivances will remain within the scope of the UK's CFC provisions in respect of their overseas subsidiaries.
	The clause reflects extensive consultation with business in the course of which there was a general agreement that a revenue protection measure was appropriate, although admittedly there was less consensus about the form that the revenue protection measure should take. The approach taken by the clause was adopted after careful examination of alternative options. Its effectiveness will be kept under close review. It will have no application to the vast majority of companies and, in practice, as I have already said, it will affect only the companies that seek to migrate from the UK for mainly fiscal rather than commercial reasons after 1 April 2002.
	The amendment would restrict the continued application of the UK's CFC rules to just the first three years following a migration—whether or not that migration was wholly artificial, and whether or not the substance of the company's operations remained in the UK. Although I understand the concerns that underlie the amendment, I do not think that it represents the right way to address them.

Howard Flight: If I understand the Economic Secretary correctly, what she says amounts to a three-year period. However, it will operate in the background and is not specified in the clause.

Ruth Kelly: I shall explain precisely how the provision will work in practice.
	As I have said, the clause is all about protecting the Exchequer from those companies that would seek to use artificial means to avoid UK tax. I do not think those who have proposed this amendment would wish it to help such companies but, unfortunately, it would. It would enable such companies to indulge in artificial migration schemes at relatively little cost. They would be subject to the CFC rules for just three years after they had put the artificial structure in place and would be free to divert profits from the UK for ever after. The artificiality could, and in most cases no doubt would, remain for ever and, for that reason, I cannot accept the amendment.
	That is not to say that I do not recognise that there is a legitimate concern over companies that migrate for genuine, non-tax-driven reasons. It is helpful that the Opposition have raised this issue as it has given me the opportunity to allay that concern. The clause is not aimed at companies who migrate for genuine, non-tax-driven reasons and will not, in practice, affect them because the CFC rules apply only to companies where one of the main reasons for their existence is to achieve a reduction in UK tax by a diversion of profits from the UK.
	I recognise that, although the clause will not affect such companies in practice, compliance with the administrative requirements of the CFC rules might be an unwelcome burden. The answer is not, however, to exclude all companies from the ambit of the clause after three years. The answer lies in finding sensible ways of minimising that burden. I think that we have done that with this Bill. The Inland Revenue already operates a well established CFC clearance system that, in certain circumstances, can amount to an across-the-board clearance for all a company's CFCs. The Revenue has already indicated to business representatives in the constructive consultation period leading up to this clause that it will extend this clearance system, where appropriate, to companies which have left the UK for genuine commercial rather than fiscal reasons.
	Indeed, the Revenue has confirmed that, although each clearance application will be dealt with quite properly on its merits, it would envisage such clearances, where appropriate, to be effective for between three and five years. It would also expect them to be automatically renewable thereafter so long as the relevant facts, circumstances and applicable law remain unchanged and the company has laid all its cards on the table. Of course, such clearances are legally binding on the Inland Revenue so long as the company has disclosed all the relevant facts. That should ensure that the clause will not, in practice, affect those companies which migrate for genuine commercial reasons and ensure that any residual compliance burdens for such companies are minimal. At the same time, the Exchequer will be protected against essentially contrived, artificial migrations.
	The hon. Member for Arundel and South Downs raised a specific point about how we can ensure that a company will not be subject to the CFC laws of more than one country. Each country has, of course, the right to apply its CFC rules at it sees fit within the constraints of international law. It has always been technically possible for a CFC to fall within the CFC rules of more than one country. The Inland Revenue, however, has published guidance on how the UK's CFC rules will be applied in such situations, and has confirmed that it has encountered no difficulties to date in the application of that guidance. I do not see any reason why this measure should make a significant difference. On those grounds, I urge the House to reject the amendment and to accept the clause unamended.

Howard Flight: I thank the Minister for her comments. I want to be clear on the matter, so I shall use simple language. One or two Finance Bills ago, Vodafone disagreed with the Government about certain tax proposals. Had it migrated, as it threatened, the immediate reason would have been fiscal. However, it could have been argued that it was also commercial. I cannot imagine that had Vodafone gone through the due legal process and migrated to Germany, or wherever, it would have been practical for the United Kingdom Inland Revenue to pursue a CFC case across the world.
	We support and understand the need for the anti-avoidance objectives, but I am not clear about the practicality of the proposals as they relate to company mobility, especially of multinational headquarters. The Minister said that the CFC rules will end after three years. I repeat my request: does that serve to produce the same effect as our amendment, which advocates the same three-year limit?

Ruth Kelly: I repeat that we want to ensure that companies do not migrate from the UK purely for fiscal reasons rather than for genuine commercial reasons. There will be a process of negotiation between the Inland Revenue and an individual company. As long as the facts are clear and the Inland Revenue is convinced that the migration is for purely commercial reasons, it will be approved.

Michael Jack: So that we understand the Minister's point with even greater clarity, will she comment on the motive test that is used to determine the adjudication of the Inland Revenue as part of the process that she describes?

Ruth Kelly: The purpose of the clause is to build on processes that are in place. The Inland Revenue informs me that two thirds of the applications that are made to it for migration on the basis of commercial reasons are approved. It has encountered no particular difficulties. The facts of the case are not often in dispute and it is usually apparent whether the move is for genuine commercial reasons or tax reasons. The Inland Revenue hopes to continue that practice.

Michael Jack: I did not ask for a description of how the Inland Revenue operates. I want the Minister to tell us a little more about the method of adjudicating the motive for companies that move, such as the example cited by my hon. Friend the Member for Arundel and South Downs (Mr. Flight). It is the motive test that interests me, not the fact that the Inland Revenue is performing its duties successfully.

Ruth Kelly: I shall certainly write to the right hon. Gentleman on the detail, but the clause is not about judging motive. It relates to the facts on the table and making a decision about whether an arrangement is artificially contrived to avoid tax. If the board of a company gets on a plane every month and holds its meetings in a different country while retaining control within the UK, that would clearly be artificially contrived to avoid our tax legislation. The Inland Revenue would reasonably wish to recover tax in such circumstances, and the clause will allow it to do just that.

Howard Flight: Again, I thank the Minister for her comments. I believe that she is saying that if a company emigrates for genuine reasons and its management and control are clearly overseas, that is acceptable. However, if it gets up to wheezes such as holding board meetings abroad when most of its activities at headquarters are conducted here, that is avoidance. The clause appears to be capable of operating in that context.
	I had in mind a company that has left the country properly, taking its control and management overseas, because of lower taxation in, for example, Germany. The Minister implied that that would be a commercial reason for migrating and not a false fiscal reason. I thank her for clarifying how the clause will work and I beg to ask leave to withdraw the amendment.
	Amendment, by leave, withdrawn.
	Clause 89 ordered to stand part of the Bill.

Clause 90
	 — 
	Supplementary charge in respect of ring fence trades

Howard Flight: I beg to move amendment No. 2, page 63, line 38, leave out "17th April 2002" and insert "1st April 2003".

Joe Benton: With this it will be convenient to discuss the following amendments: No. 22, page 64, line 10, leave out "17th April 2002" and insert "1st April 2003".
	No. 33, page 65, line 17, at end add—
	"(11) This section shall come into force on such day as the Treasury may by order made by statutory instrument appoint, but no such order shall be made until an economic impact assessment has been made of the effect of the changes on activity and employment in the oil industry in the North Sea.".
	I have agreed to allow a separate vote on amendment No. 33.

Howard Flight: The issues raised by the amendments are some of the most important that we shall consider. The Committee and the Government will be aware that a broad cross-section of people in political parties—certainly Scottish MPs of all parties—and the oil industry think that the proposal is not wise. I hope that the Government will listen to the arguments and think about them before we reach the Bill's final stages.
	To make sense of the amendments, I shall run through the arguments. The clause imposes a 10 per cent. supplementary charge on top of the 30 per cent. corporation tax charge on oil companies. Clause 91 sets out the process for assessment and clause 92 sets out the transitional provisions. The amendments are designed, in different ways, to prune back or check what is provided and, in some cases, to delay implementation until proper further consideration is given.
	The central issue is that the Treasury argues that it will be commercially successful to levy significant extra tax on the oil industry. The Treasury knows that independent assessment estimates that, if oil prices remain reasonably stable, between now and 2010 that will generate about £6 billion in extra tax, some £2 billion of which will be realised in the coming fiscal year. The Government's case is that that would not materially damage investment, employment and operations in the North sea.

Paul Boateng: So much to learn.

Howard Flight: I beg to disagree with the Minister, and I shall run through why. If he is not aware of the industry's concerns, he has not done his homework. The trade representative body for the industry has set out in detail the full reasons why the industry believes that the proposal will be extremely damaging.
	The Government have made the wrong judgment. On the central issue of the movement of oil prices, I suspect that they did their thinking earlier in the year when oil prices were higher. They did not expect oil prices to be in the order of $18 to $20 or take account of the increases in output from Russia over the next few years.

Michael Jack: Has my hon. Friend in his researches discovered any analysis to explain whether North sea oil production is undertaxed, which would justify the proposals dealt with by his amendments?

Howard Flight: I have found no such evidence; if anything, oil production is overtaxed, particularly in relation to the risks and nature of the businesses, as I shall explain. I have been trying to stress that the Treasury decision was made in the expectation of higher oil prices and was commercially wrong. That has nothing to do with whether it was morally right or wrong. The Treasury's analysis was grounded on excess profitability, but was based on far too short a period of profitability in recent times when oil prices have been higher. Independent analysis of profitability shows that between 1996 and 1999 profit margins have been as little as 1 to 8 per cent., based on an oil price of $15 to $20 a barrel. The United Kingdom needs to be fiscally attractive to meet the challenge of a mature industry that has an unfavourable risk reward profile compared with other parts of the world, particularly the Mexican basin, and whose operations are relatively expensive.

Frank Doran: The hon. Gentleman's arguments would be a little stronger were it not for the fact that in 1993 the Conservative Chancellor raised oil taxes and took £600 million to £700 million from the North sea. Some commentators, encouraged by the then Chancellor, described that as a boost to the North sea oil industry. How is that consistent with the hon. Gentleman's position?

Howard Flight: First, the lesson was learned. I am not sure that the hon. Gentleman gave the correct date. He mentioned 1993, but I think that the lesson was learned in 1983 when the Conservative Government put up taxation on the back of rising oil prices. There was a reaction, which will be repeated if the present measures are accepted, but thereafter there was a settlement with the industry.

Malcolm Bruce: The hon. Gentleman may recall—I was in the House then and remember it well—that we divided the House and voted against the Conservative Government. The then shadow Chancellor refused to join us on the grounds that he supported the then Government's tax.

Howard Flight: I thank the hon. Gentleman, who has beaten me to it. I was about to say that we learned our lesson in 1983 and a stable tax regime for the oil industry has been a necessary and effective platform for success ever since.

Alex Salmond: It is true that there was a tax change in 1983, which the then Government described as a boost for the industry. Over the past few days, the hon. Member for Aberdeen, Central (Mr. Doran) has been describing the current proposed tax change as a boost for the industry. It appears that he has been learning lessons from the Conservative Government.

Howard Flight: Things never change.
	Before the proposed income tax increases, in a comparison of the profitability attractiveness of 57 countries, the UK was ranked 31st for the North sea basin and 40th for the southern basin. The UK fields are smaller, the costs are higher and the risk reward is considerably less attractive than in most other parts of the world. Extraction costs are about $8 a barrel, which are among the highest—58th out of 59—anywhere in the world. Those figures, as I am sure the Minister is aware, were produced by Wood Mackenzie investment bank.
	Investment decisions by the industry are not based solely on rate of return computations, but are made in the context of fiscal considerations, cash flow and risk reward in relation to the size of the investment programme. They are also—this is very much what we have just been talking about—a factor in the stability of the tax regime in which they are made. Many people inside and outside the industry view the Government's proposals as a breach of faith, given their pilot scheme, which has been extremely successful in recent years in encouraging a significant increase in North sea investment. In 2001, 21 new fields went into operation at an investment cost of £8.23 billion—double the 2000 level—so, not surprisingly, it is felt that the significant tax increase will have a retroactive impact on investment decisions, which the Government have encouraged people to take on the basis of a stable tax regime. People are zapped with significantly higher tax on investments to which they have committed themselves.
	If there is a breach of faith, previous experience shows that there is a serious risk that the multinationals, which are the main participants, will look at other areas of the world, particularly the Gulf of Mexico, as they offer much more attractive fiscal arrangements, risk rewards and field sizes.

Roger Casale: The hon. Gentleman did well to remind the Committee that the previous Administration extracted a substantial revenue stream from North sea oil throughout their period in office, as they did from the privatisation of many national industries. However, the Committee will not need reminding that the Conservatives did very little with those resources. In fact, at the same time as drawing that income stream from the taxation of North sea oil, it piled up more and more national debt. Just when we are at the point of using those resources to invest in public services, the hon. Gentleman opposes the tax from which his party profited throughout its period in office, although the nation gained precious little.

Howard Flight: That is a pretty feeble and irrelevant comment by the hon. Gentleman. The issue is simply whether additional taxation of the industry will have a major impact on investment, employment and the health of the industry. Self-evidently, as I have said, the Treasury has decided upfront that the proposal will not lead to that. However, as I am endeavouring to explain to the Committee, the industry and most outside commentators believe that that is not the case; the change is unwise because it will seriously damage employment, investment, operations and the amount of oil that we produce; we are now virtually self-sufficient. All Governments, going back to the Labour Government of the 1960s, have taken tax revenue from North sea oil.
	The net effect of the measures will be to take £6 billion of cash flow out of the industry over the next eight years and to produce an annual fall of about £2 billion in retained earnings, which will clearly have an impact on the cost of raising capital for oil companies through their share prices and gearing.
	Historically, independent analysis has shown, for better or for worse, that tax more than the price of oil has driven North sea development and North sea investment. The measure will make the UK uncompetitive and unattractive. It will increase the UK marginal tax rate from 69.4 per cent. to 73.7 per cent. at a time when the industry has been doing extremely well in a mature environment. I congratulate the Department of Trade and Industry on the success of its pilot scheme. We are producing 85 per cent. of our primary needs.
	The measure will put the future of the industry at risk, and many companies have indicated that they will rebalance their world activities. I shall deal later with the depressing figures that indicate that the proportional interest in investments offered since the Budget show an immediate downwards reaction.
	Finally, the tax will apply to the 41 per cent. of production that constitutes gas. In the past three years, gas prices have been falling, not rising.
	Let me deal with specific issues arising from the tax proposals. Not only are financing charges, as provided, not allowable against expenses, but as the charge is a special supplementary charge, it is unclear whether brought-forward losses could be offset against it. It is not a standard corporation tax charge. More fundamentally—I raised the issue on Second Reading—will the tax paid with the supplementary charge be creditable by non-UK parent companies receiving dividends from their UK subsidiaries under double taxation treaties against their tax liabilities elsewhere? If not, there is a significant risk that double taxation will be paid, particularly by US companies. If that is the case and if it is not changed, the UK will be saying goodbye to the very favourable double taxation treaty that we negotiated with the United States last year but for which, for reasons not explained, the Government have not yet put through the necessary legislation. Although that is a different issue, it would be interesting to know why.
	On royalties, the Government have argued that a combination of the offer to negotiate and get rid of royalties, and capital allowances, would go quite a long way to offset the proposed increase in taxation. That is not the view of the industry. Indeed, many in the industry would argue that the abolition of royalties is not a particularly good idea as it does not encourage new developments, which have been exempt since 1982, and could give rise to windfall profits on old fields.
	However, the Government have not given a commitment to abolish royalties—there is nothing in the Red Book to that end. Current royalty receipts are of the order of £500 million per annum. They are not allowable against petroleum revenue tax and corporation tax computations, and the independent assessment of the future saving up to 2005 is £120 million to £150 million per annum.
	The Chief Secretary argued on Second Reading that the additional taxation would be entirely offset by first year allowances. The Wood Mackenzie figures that I quoted suggested that that is nonsense. They show an impact of £8 billion on profits, assuming stable oil prices between now and 2010, versus a deterioration of £6 billion in the cash flow position. That suggests that the Chief Secretary's claim is not correct.
	Given that 6 per cent. of Scottish employment is in the industry, no wonder most, if not all, Scottish Members of Parliament are worried. Given the way in which the Chancellor usually protects his back-garden Scottish interests, I wonder whether he is fully aware of the likely impact. As the House may be aware, in the past 10 years the only two economies to introduce tax increases of comparable size have been Argentina and Venezuela.
	In view of all the Government's claims about consultation before imposing major measures, the industry is rightly offended that there was no consultation on these proposals. They are ill-conceived and, as precedent shows, it is dangerous to think that Governments can merrily dip into profits every time oil prices rise. When oil prices fall, that is followed by a major decline in new investment. The long-term confidence and trust that has been built up over the past 20 years has been severely knocked. Because of its mature nature, the UK industry cannot afford to take risks with its outlook.
	Amendments Nos. 2 and 22 propose a year's delay in the introduction of the charge. Other amendments deal with the rate of the charge and the treatment of financing costs. Amendments Nos. 2 and 22 seek to ameliorate the impact of measures which we believe are unwise and not in the national interest, and which will do more damage to an important industry and employer than they will bring benefit in terms of additional tax revenues.

Alex Salmond: This subject was vigorously debated in the Scottish Grand Committee yesterday, and I do not intend to repeat the contributions that some of us made there. None the less, the issue is vital and current enough for at least some of those arguments to be brought to the Committee of the whole House.
	I want to try and sweep away some of the nonsense in the debate. It is not the case that Governments do not have the right to change oil taxes. For example—never mind 1993—one of the initial acts of the Thatcher Government in the early 1980s was dramatically to increase the tax regime for North sea oil. The previous Secretary of State for Energy was Tony Benn. Margaret Thatcher decided that a more vigorous taxation regime was necessary than had been decided by Anthony Wedgwood Benn. It was extraordinary. The Government's argument was that oil prices were high and they wanted to get some of that endowment into the Treasury. Similar arguments had been used for previous oil tax changes.
	So oil tax changes do take place. What is significant and different about this oil tax change is that the industry and others were led to believe, after a consultation exercise following the 1997 election, that there would be a stable tax regime. It is true that the Government can argue that the Chancellor always reserved the right to change taxation. I have no doubt, because I have been through the record, that we will not be able to cite a ministerial statement, although there were plenty of Back-Bench statements, not from the hon. Member for Aberdeen, Central (Mr. Doran), but from his hon. Friend the Member for Aberdeen, South (Miss Begg), who triumphantly told us that lobbying by her and her colleagues—presumably, she included the hon. Member for Aberdeen, Central by implication—had succeeded in producing a stable tax regime in the North sea. So only last year, those hon. Members were claiming the credit for producing a stable tax regime. The same Members—and certainly the hon. Member for Aberdeen, Central—now welcome the massive change to that tax regime that is proposed.
	After the Budget announcement, I know that Labour Members feel that they must loyally dragoon themselves behind the Chancellor. His power over Labour Members in Scotland means that they will not enhance their career prospects by trying to gainsay him. None the less, hon. Members representing areas in north-eastern Scotland and more widely have a clear constituency interest in terms of employment. They should at least want to know about the impact on jobs and investment before they unthinkingly line themselves up behind the Chancellor and vote at their party's call without thinking of voting for themselves. It would be unreasonable of constituents in the north-east of Scotland to have to expect anything else.
	The second bit of nonsense in this debate is the Government's argument about the impact on jobs. I used to deal with field financing, so I recognise what can be done with the figures. The Government cannot take £1 billion in a full year out of the North sea industry and claim that it will benefit investment in the sector. I remember a debate for the Republican nomination that occurred a long time ago between George Bush senior and Ronald Reagan, in which Ronald Reagan advanced a similar argument, although it was on a different matter, and George Bush called it levitation economics. That is what the Government are engaged in. According to them, we can take £1 billion out of the industry not only without damaging it, but benefiting it. They are saying, "We are going to take £1 billion out for your benefit; we're from the Treasury and we're here to help you"—one of the great creative lies in life.
	The measure will damage the industry; the only thing to be estimated is how much damage will be caused. The demeanour and body language of the Secretary of State for Scotland was yesterday even more vigorous than usual. I would say that it was defensive, and I am pretty certain from that alone that she found out about the proposed change in Cabinet on the day of the Budget announcement. She did not confirm that in the debate, but I detected that the measure was probably as much of a surprise to her as to the industry and the rest of us.
	In the Scottish Grand Committee yesterday, the Secretary of State said that she thought that the measure would minimise the impact on jobs. That is an interesting phrase, because it concedes that there will be an impact on jobs. Will the Economic Secretary tell us how minimal that "minimal" is? Are we talking about 5,000 or 10,000 jobs? Or will 500 jobs be lost? The Secretary of State said that
	"we should minimise impact on our jobs".—[Official Report, Scottish Grand Committee, 8 May 2002; c. 21.]
	In order to make that statement, she must have had some sort of figure or quantity in mind. Surely the Economic Secretary will tell us that, before the Government undertook to make such a substantial change in oil taxation, they had at least taken into account the probable impact on jobs. If they had taken that impact into account and conducted an analysis, as was suggested to me by the Paymaster General, they must have arrived at some sort of projection.
	Whatever else the Economic Secretary says, she must tell us what the figure is. How minimal is it? Is it 500, 5,000, 10,000 or more? If the Treasury cannot provide such a figure, it will, by introducing a short-term and unexpected tax change that is a reversal of what was expected only last year, stand accused of putting at risk a substantial number of jobs. I take that ill. Successive Chancellors have done well out of the North sea. Some £160 billion—£32,000 a head for every man, woman and child in Scotland—has come from the North sea in the past 20 years or so and gone straight into Treasury coffers. The percentage allocated directly to Scotland was zero.
	So there was a huge windfall, and it continues; the hon. Member for Arundel and South Downs (Mr. Flight) was right to say that many positive things were happening in the North sea. Indeed, I listed a number of them at yesterday's sitting of the Scottish Grand Committee. They are reflected in the estimates of the Chancellor, who says that he is expecting another £32 billion out of the North sea in the next six years, which is £5,000 for every man, woman and child in Scotland. When the hon. Member for Arundel and South Downs speaks about the Chancellor feather-bedding Scotland—that was the implication of his remarks as I understood them—he should reflect on such figures and on how successive Chancellors have themselves been feather-bedded by that flow of revenue from the Scottish sector of the North sea. The expected £32 billion is double the amount produced in the past six years. As the Chancellor is receiving such substantial largesse from the North sea, I think that we are entitled to ask what analysis was conducted on the jobs and investment impact of the substantial tax change in question; and to ask how specific it was and why it was not published.
	Many good things are happening in the North sea, including 21 new field developments last year and the discovery in the Buzzard field of the biggest accumulation of oil found for a generation—a huge development that might generate 400 million barrels. Unfortunately, it has been confirmed that some of the DTI management for that project will be based in London, not Aberdeen, although it would have been reasonable to assume that management for a field that is located to the north-east of Aberdeen would be based there. None the less, that is a huge accumulation of oil and there are many successful developments in the North sea.
	There are, however, worrying signs for the future. As I pointed out to the Scottish Grand Committee, the number of wells currently being drilled is sharply down on the number only a few years ago. In 1996, 112 exploration and appraisal wells were drilled in the waters around Scotland. Last year, 51 were drilled—a decline of more than half in the past few years.
	I had a discussion yesterday with the Minister for Industry and Energy about licensing. I pointed out that for the first time ever, as far as I can remember, the DTI did not issue a press release to announce take-up of this year's levy. I speculated that the reason for that might be that out of the 289 blocks offered, only 36—12 per cent.—were applied for. I had to gain that information from the trade press, as there has been no official DTI press release. The Minister said that I was being alarmist and scaremongering, and he told the Committee—the hon. Member for Aberdeen, Central will remember this—that we should not worry too much, because in last year's round the take-up was only 10 per cent. I have since looked at the figures for the 2000–01 round, which was the 19th. There were 44 blocks in all, but 12 were applied for; my arithmetic produces a take-up rate of 27 per cent.
	I know that it is becoming commonplace for Labour Ministers to manage to muddle, mislead and misunderstand, but never to take responsibility for doing so. I shall derive some entertainment in the next few days from gaining from the Minister for Industry and Energy information on how the 10 per cent. mentioned yesterday in the Committee can become 27 per cent. when one looks at the figures. Even if the level was 10 per cent., it would still be a matter of huge concern to me and anybody else who is interested in the future of the industry that only 36 blocks out of 289 were taken up in the latest licensing round. That is not an issue for prolonged exchanges and parliamentary debate, but it is a matter of concern, as it tells us what will happen in the industry not in the next five or 10 years, but in next 15, 20 and 25 years. The tragedy is that all available evidence suggests that if the blocks were drilled, they would have a substantial success rate.
	Perhaps the hon. Member for Aberdeen, Central will anticipate my next remarks. I seem to remember him saying yesterday that the success rate in the North sea was pretty low. I have also looked at that rate in the past five years. The success rate in drilling was 17 per cent. in 1996, but in 2001, the rate was 25 per cent. in terms of the finding costs and the success rates of drilling and appraisal in the North sea.

Frank Doran: The figures that I quoted in yesterday's Scottish Grand Committee debate, which were published by Professor Alec Kemp three or four years ago, show a one in 14 success rate. I accept the hon. Gentleman's point that exploration has reduced. That is partly because the industry has become much more focused. It is not prepared to take the risks that it took in the early 1990s.

Alex Salmond: I hardly think that that supports the argument that the hon. Gentleman has been pursuing in the press in the north-east of Scotland, which is that the measure is somehow a boost to the industry. If he believes, as he seems to, that the discovery rate is very poor, surely that would be a reason for him to argue against his Front Benchers. In fact, the discovery rate is high. I got these figures from Professor Alec Kemp on Monday, which postdates the hon. Gentleman's information. I shall make a copy available to him. The success rates since 1996 have been 17 per cent., 18 per cent., 17 per cent., 38 per cent., 23 per cent. and, for last year, 25 per cent. Those are good success rates. Obviously, they are not the same as they were 20 years ago—one would not expect that—but for a mature province they are excellent.
	We know from the figures that the number of exploration and appraisal wells is down—there has been a sharp reduction. We know—even the Government will concede this, whatever they say about individual field projections in economics—that such aspects of oilfield financing are financed out of cashflow. Unless there is an offsetting measure in the taxation regime, the measure will result in a further decline in exploration and appraisal drilling, and hence a further decline in employment in the North sea.
	The purpose of amendment No. 33—

Frank Doran: Before the hon. Gentleman moves off the subject, I have the same figures from Professor Kemp. I want to make two points. First, I have never once said publicly that the tax change will be a boost to the North sea, so I hope that he will not continue to say that.
	Secondly, the point that I was trying to make earlier, which is made forcefully by Professor Kemp in his presentation and analysis of the figures, is that the oil industry has become much more risk-averse. That has nothing to do with this tax change: it is a direct consequence of the tax changes made in 1993, which Conservative Front-Bench Members seem to have forgotten. Nowadays, most drilling is satellite drilling around existing fields, rather than the wider exploration that used to take place in the early years of the oil industry. That change has nothing at all to do with, and is unlikely to be affected by, this tax change.

Alex Salmond: On the hon. Gentleman's first point, I saw a quote from him in The Press and Journal, a notable paper in north-east Scotland, which seemed to suggest that he regarded this—[Interruption.] I shall do this for the hon. Gentleman. I dare say that he intends to speak in the debate, and I shall arrange to have the quote available by the time he does so. We can then test whether he has been misrepresented by The Press and Journal. I doubt that.
	At the very least, the hon. Gentleman has given the impression that these tax changes are nothing much to worry about. Perhaps he will concede that point. He is not responding. Perhaps we are making progress, and the force of our arguments over the past few days are finally convincing him that some of his constituents may have something substantial to worry about owing to the changes made in the Budget. That may be belated, but better that one sinner repenteth by recognising that the Budget might damage employment prospects in his and my constituencies, and in those of many other hon. Members. If the hon. Gentleman accepts the force of that argument, I hope that his vote will follow his conscience. Hon. Members may think that unlikely, but it happens occasionally, although it is almost as rare as catching a Minister telling the truth. Such things may not happen often these days but are none the less welcome when they do.
	I have never argued that it is not the Government's right to make a tax change or that it is impossible to make such a change and not damage activity. There is an argument that producing fields in which the capital outlay took place a considerable time ago are making substantial and healthy profits. However, if the Government are to make such a tax change, it should be accompanied by three things. First, there should be proper consultation and proper notice, as the Government have promised us in relation to other tax changes over the past few years. Secondly, we should have an analysis to show the impact on jobs and investment, so that we can all identify how many of our constituents will be at risk and whether the "minimal" figure is 500 or 5,000.
	The third factor is the most crucial, and I want to put to the Minister some of the points that I put to Ministers in the Grand Committee yesterday. Even within the framework of this tax change, it is possible to introduce other changes that would boost investment—for example, through a further uplift for exploration and appraisal drilling. That used to be done through petroleum revenue tax. That was a very high tax, but it did not damage activity because there was an encouraging and substantial uplift to allow for exploration and appraisal drilling. Many companies, even when they were facing a high tax regime, decided to keep on drilling because it was tax efficient. It would be helpful to have an uplift for exploration and appraisal drilling.

Jim Sheridan: The hon. Gentleman suggests that before introducing tax increases we should have analysis and consultation. Perhaps that should start within his own party, because, as he will know, the fundamentalist wing of the Scottish National party argues consistently for increased taxes on oil in an independent Scotland. How does he square that circle?

Alex Salmond: SNP policy is clear. I have articulated it many times, as has the oil spokesperson. In a past life, the hon. Gentleman was councillor in a robust local authority in Scotland, and perhaps he carries some of those battles with him into the House of Commons. SNP policy is clearly spelled out in documents, and if he cares to look at them and restate his argument, I will respond to it. Other than that, I shall leave him to his historic battles in council chambers around Scotland.
	It is possible to introduce other substantial changes to try to boost investment. I mentioned exploration and appraisal drilling and a further uplift. It might be possible to do something about field financing. Because the change will affect cash flow, in future more fields will be financed by specific field financing from financial institutions. The Liberals have tabled an amendment, which they may or may not wish to press to a vote, although I am not sure whether it would achieve what they want it to achieve. There is potential to relieve interest payments on field financing that will encourage the financing of field economics.
	Conservative Members talked about the abolition of royalties. It would make a great deal more sense to abolish royalties for companies that are pursuing incremental investment in these fields. In other words, instead of people getting something for nothing, they should get something for something.
	This is a substantial tax change. It is impossible to take £1 billion out of an industry without having a major impact on jobs and investment. If the Treasury gave more thought to the matter, it would be possible to make consequent changes that would encourage investment, drilling and exploration in field development, thereby sustaining jobs in the North sea. In the long term, that would be a good deal for the Treasury. The oil revenue outlook is bright for the next six years, but I understand that the Chancellor believes that he will be in power for generations to come. In generations to come, the amount of oil revenue that comes from the North sea will be decided by the exploration and appraisal drilling that takes place now. So even in the Chancellor's self-interest, there is a substantial argument for making those changes and ensuring that we keep the show on the road.
	Above all, the people of Scotland, having seen so much flow for so long from the Scottish sector of the North sea to the London Treasury, are entitled to ask Treasury Ministers to produce an analysis of the impact on jobs and investment of this tax change. If that is not produced, and no further changes are made to boost exploration, appraisal and field development, Treasury Ministers, led by a Chancellor who represents a Scottish constituency, will stand accused of sacrificing Scottish jobs for a smash-and-grab raid to fill Treasury coffers.

Frank Doran: As the hon. Member for Banff and Buchan (Mr. Salmond) made clear, we had a vigorous debate yesterday in the Scottish Grand Committee, and I do not intend to repeat the points made there. He has made some substantial points, and I shall try to deal with some of them.
	It is important to examine the amendments tabled by the Conservatives and the SNP. They would delay the tax for a year, and I understand the reasons for that. However, I was not clear from the speech of the hon. Member for Arundel and South Downs (Mr. Flight) whether the amendment was a probing amendment or a serious attempt to delay the tax. The latter entails serious dangers.
	It is important to focus on a point that several hon. Members will raise today and that was made yesterday in the Scottish Grand Committee—the lack of warning that the oil industry received. I deliberately raised the 1993 Budget with the hon. Member for Arundel and South Downs because there was no warning of the tax changes that the then Chancellor announced. The industry suspected that some of the larger, more substantial companies had an inkling of the changes. It was even suggested that they had actively promoted them. However, one of their effects was removing petroleum revenue tax. That had direct consequences for the reliefs that were available to the industry for exploration and appraisal. The hon. Member for Banff and Buchan made that point. It is important, because that is when the difficulties in exploration and appraisal started. The industry has been contracting its efforts on that ever since.
	In 1993, it was clear that substantial parts of the oil industry had no inkling of what was about to happen. I would argue strongly that the position has changed dramatically. In 1997, the new Chancellor announced that he would review oil taxation and he set out the terms for the review. As the hon. Member for Banff and Buchan made clear, I perceive the oil industry as extremely important in my constituency. It accounts for 6 per cent. of Scottish employment, but a much higher proportion in the north-east of Scotland where most of it is based. It is an important employer in my constituency.
	The industry was well warned about the review. Like many other hon. Members, I lobbied strongly against it and any change in the taxation regime. I believed that that was important for one specific reason: to have a sustained period of low oil prices. There was a major problem, and I therefore believed that it was inappropriate to review the taxation at that time.

Robert Smith: There is a fatal flaw in the logic of that argument. It implies that the hon. Gentleman has a crystal ball that tells him that we will have a sustained period of high oil prices. We are not considering a price-sensitive profit tax.

Frank Doran: I do not accept that. The industry was going through severe difficulties; many jobs had been shed, and it was unable to cope with the changes in the review. With many colleagues from all parties, I argued and lobbied strongly. I am clear about the reason why the Chancellor dropped the review in 1998 and decided not to press ahead. I am clear about it not only because of private discussions with the Ministers who undertook the review but because of the public statements that were made at the time. A sustained period of low oil prices was an inappropriate time to introduce any substantial tax changes to North sea oil.
	I shall not bore the House with figures; the Secretary of State for Scotland read them out in the Scottish Grand Committee yesterday, but the past three years have been a period of sustained high oil prices. The industry can therefore cope with changes.

Alex Salmond: To refresh the hon. Gentleman's memory, in 1997 the Chancellor announced that he would review oil taxation. I have a copy of the press notice, which stated that a consultative document would be issued and that people would have plenty of time to comment on it. If, after consultation in 1997, it was decided not to alter the taxation, why was no consultation document issued this time to allow the hon. Gentleman's amazing lobbying powers to come back into play? Where was the consultation?

Frank Doran: The hon. Gentleman should hear me out. The brand new Government issued a consultation document; it was a different time in the industry. I am trying to make the point that the change this year should not have come as a surprise to the oil industry. It employs some of the most sophisticated lobbying techniques of any industry in this country. All of us who have an interest in the oil industry have been subjected to that lobbying. Its lobbying of Ministers is even more intense; we know its effectiveness. The signals were there for those who chose to look. Not least were the Chancellor's declared intention in 1997, the new circumstances that have pertained for three years, and a position whereby the returns on capital in the North sea were as high as 34 per cent. That is higher than in almost any other United Kingdom industry. The change should not therefore have surprised the oil industry.

Ann McKechin: Andersen, which was part of the big six but is perhaps now part of the big five and a half, issued a post-Budget bulletin. It boasts:
	"A detailed report by Andersen Petroleum Services"—
	which is issued to major players in the industry—
	"in September 2001 anticipated and analysed the impact of 10 per cent. SCT for North Sea oil."
	That suggests that the oil industry was well aware that the change was likely to happen in the current financial year.

Frank Doran: Absolutely.

Robert Smith: If the industry has such a sophisticated and effective lobbying operation, and it knew about the change before the Budget, why did it not lobby about it before the Budget?

Frank Doran: The hon. Gentleman might well ask that question of the oil industry. It is clear to me that it should have been more awake; it fell asleep.

Alex Salmond: Will the hon. Gentleman give way?

Frank Doran: No, I have given way. Let me make a little progress.

Robert Smith: Does the hon. Gentleman admit that we have a point?

Frank Doran: I am not sure whether we should have this dialogue.

Joe Benton: Order.

Frank Doran: The hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) asked from a sedentary position whether I admitted that the change was a surprise. Of course I admit that because, as I said earlier, I believe that the oil industry fell asleep. The people who should have been in contact should have known about the change and the industry should have been prepared.
	My hon. Friend the Member for Glasgow, Maryhill (Ann McKechin) made an important point. The oil analysts do not necessarily mirror the views that have been expressed by some of the oil companies. It is no surprise that the industry opposes an increase in taxation. I would not have expected any less than its campaign. However, all the focus is on the 10 per cent. increase; the Opposition happily ignore the other side of the equation.
	There has been a shift in taxation focus to profits. That will be effected when royalties are abolished, which I hope will happen soon. The 100 per cent. capital relief will change significantly the way in which work is done in the North sea. It will allow companies to get a return on their invested capital much more quickly.
	The hon. Member for Banff and Buchan made a point about exploration and appraisal. We are not a million miles apart on that; perhaps our interpretation of the current position differs. There is a strong argument that the oil industry is being encouraged to focus on marginal drilling and enhancing existing fields. There is not a huge amount of activity. Buzzard field is an exception; much of the industry is concentrating its resources on the assets that it already has and on using existing infrastructure to develop.
	In addition, we have seen a number of new companies coming into the field—the Talismans of this world, and companies such as Kerr McGee. Kerr McGee has been there for a long time, but it is one of the companies now operating in the older fields and building up a portfolio of assets in the smaller fields—the fields that the larger companies, such as the BPs and Shells of this world, will not touch because the returns on investment are not adequate.
	The profile of the North sea is changing, and this Budget will accelerate that. Smaller companies such as Talisman are welcoming it, now that they have had a chance to look at it. They are welcoming the change in focus.

Michael Jack: Can the hon. Gentleman tell the House whether all the newer fields will be profitable in the first year?

Frank Doran: No, I cannot, because every field has its own individual profile. I, and some of the analysts I have spoken to, expect to see a change in the way money is spent in the North sea. There will be a much longer lead-in time before construction starts and money is spent on the kit that is necessary. Expenditure on that kit will be concentrated in a 12-month period so that returns can be made much more quickly.

Michael Jack: indicated dissent

Frank Doran: That is what the analysts tell me. They believe that one of the consequences of the Budget will be a change in the investment profile of the North sea. That is good news for the North sea, and it is certainly good news for employment.
	When the 1993 Budget came into effect, there were about 19,000 people working in the offshore oil and gas industry, on the drilling rigs, the stand-by vessels, and so on. The number fell to 17,000, which is where some people expected it to remain. The figure today is nearly 25,000, which is a sign of the change in the industry.
	We all cried doom about the tax changes in 1993, but many other factors are at play in North sea investment. Tax clearly plays a part. Despite all the doom and gloom merchants, the fact remains that the North sea will still be the lowest-taxed area of any oil province anywhere in the world.

Alex Salmond: I am finding it quite difficult to understand the hon. Gentleman's position. Earlier, I suggested that he had said in the papers that this was a boost for the industry. My recollection is that the hon. Gentleman denied that. I have now found the quotation that I was looking for. The Aberdeen Evening Express of 18 April stated that
	"city Labour MP Frank Doran was predicting a boost for the industry.
	'It should encourage development of smaller fields, especially by smaller companies,' he forecast."
	Is he saying that, on balance, this provision is a boost for the industry? Is he—like the Secretary of State for Scotland—saying that it will have minimal impact, or, like us, that it will have a substantial impact? Which of those three positions, on balance, does he adopt?

Frank Doran: I may have to accuse the hon. Gentleman of ignoring the second part of the Budget, which provides 100 per cent. capital relief. The quote that gave relates to that relief. It is a direct quote and I accept it. I am proud to repeat it here today. That capital relief will be a boost. The overall picture for many companies in the North sea will show an improved financial position. Yes, there will be losers, and they will, generally, be those with existing installations. The effect will be spread across a fairly wide field and, on the basis of all the companies' returns over the past three years, I believe that they can well afford to pay the tax, so I make no apologies for the comments that I made.

Robert Smith: Will the hon. Gentleman give way?

Frank Doran: No, I have given way quite a lot, and other Members want to speak.
	In summary, the amendments are simply a spoiling tactic. It was necessary to change the taxation position. The Chancellor delayed the changes from 1997, and, in my view, the industry should have been aware that they were coming. It was not difficult to see them coming, and it should not have been difficult to plan for them. The North sea has a very adaptable and innovative industry, and it will adapt to this situation. I accept that it would have preferred the tax changes not to be made, but many companies will benefit.
	The long-term future of the North sea will not be damaged by the changes; indeed, I believe that we will see increased investment, particularly in the enhanced recovery techniques in existing fields because of the full capital reliefs, and in new projects. There is every incentive to make those investments, and there is nothing to stop oil companies investing in the North sea as opposed to in any other oil regime in the world.
	I want to raise with my hon. Friend the Minister an issue arising from the proposed tax changes. I have received a letter from Kerr McGee North Sea, a company based in Aberdeen. It raises an issue that no other company has raised, and I would appreciate hearing my hon. Friend's views on it. Kerr McGee suggests that one of the consequences of the tax changes will be that the supplementary charge will not be creditable against US taxes. Kerr McGee is an American company, and it is concerned about double taxation. That would be a worry, and I hope that my hon. Friend will be able to reassure me that that would not be the position.

Chris Grayling: It is not often that I find myself putting my name alongside that of the leader of the Scottish nationalists on an early-day motion. Early-day motion 1237 states:
	[That this House notes that the North Sea oil and gas industry supports six per cent. of the Scottish workforce and as such is vital to the Scottish economy; recognises that Scotland is competing against other potential investments around the world, acknowledges a marked 55 per cent. decline in exploration and appraisal since 1996; expresses its concern that the Chancellor announced a 10 per cent. supplementary charge on North Sea profits without any public economic impact assessment or formal industry consultation further notes that it contradicts the Chancellor's own policy of consultation for the Government to usher in changes to policies without public consultation; and calls on the Government to delay any changes to the fiscal regime until a full economic impact assessment can be conducted which looks at the current and future likely effects of a tax increase on employment, exploration and appraisal, and utilisation of UK pipeline infrastructure related to the North Sea.]
	The motion was signed by Scottish nationalists, by Conservatives north and south of the border, and by representatives of Wales and Northern Ireland. It emphasises our concern about the impact of this measure on the oil industry in Scotland. This is not, however, an issue only about the oil industry in Scotland, or industry in Scotland. It is an issue for the entire United Kingdom. This is a fundamental, strategic industry for the whole United Kingdom, and if it suffers as a result of an ill-thought-out tax change, we will all suffer.
	This measure is just another example of a lack of understanding in the Budget of the financial impact of tax increases on business. We have talked a great deal about the impact of the increase in employers' national insurance contributions. This is another example of money being taken out of business. There is no way credibly to argue that removing hundreds of millions of pounds from an industry will benefit it. That does not add up. If we take money away from somebody, they will have less money, not more.
	Scotland can ill afford a drop in manufacturing investment or a drop in support for manufacturing industry at this time. At Scottish questions last week, we heard that employment in manufacturing industry in Scotland was at a low level of 281,000. There is no way in which taking this money out of Scottish manufacturing will increase that figure rather than reduce it. The Treasury Minister, who is not in his seat at the moment, argued earlier that the industry was positive about the steps being taken. I pinched myself when I heard that.
	I have picked up some of the feedback that the industry has given since these measures were announced in the Budget. Let us start with the UK Offshore Operators Association, the trade association of the offshore oil and gas industry:
	"UKOOA is surprised and concerned at the decision to introduce a 10 per cent. supplementary charge on North Sea profits."
	The association
	"fears that this could undermine investor confidence in the long-term viability of the North Sea, the very thing that the Industry has been working with Government, through PILOT, to achieve."
	I could be wrong, but that does not sound to me like a ringing endorsement of the Budget's tax changes.
	Lord Browne, chief executive of BP, said:
	"Taken together, those steps are likely to reduce investment and to hasten the decline of production. Their direct impact will be compounded by the fact that a change made in this way reduces confidence in the stability of the regime going forward and imposes an added element of risk on all future decisions."
	That does not sound like a ringing endorsement of the tax changes from the industry, either. These measures are bound to have a practical and direct consequence on business decisions taken in the North sea, in the Scottish economy and in the economy throughout the United Kingdom.
	On investment, Wood Mackenzie, the acknowledged industry leaders in the financial services sector, said:
	"Overall, Brown's adjustments will be a blow to new UKCS entrants who have been acquiring assets unattractive to the major companies, thereby breathing new life into the North Sea. With some more marginal fields failing to be economic when taxed at 40%, several of which would have been developed, or had their life extended, could now be mothballed."
	How is that a reflection of increased investment in the North sea?
	There will also be an impact on suppliers—the manufacturing businesses in Scotland that produce equipment to support the oil industry. How can the removal of hundreds of millions of pounds from the industry make it more likely that those businesses will expand rather than contract? How can it make it more likely that oil companies will buy additional equipment, rather than making cuts when it comes to investment decisions?

Robert Smith: May I reinforce a point that the hon. Gentleman made earlier? We should bear in mind that this change will affect not just manufacturing industry in Scotland but constituencies throughout the United Kingdom. There are businesses well away from the North sea that start the supply chain. It is the money invested in the North sea that pulls in their products. Many Members who do not think the oil industry is important to them will find that it is.

Chris Grayling: I share the hon. Gentleman's concern. My constituency, Epsom and Ewell, is quite a long way from Scotland, but I view this as very much a United Kingdom issue. As the hon. Gentleman says, there are firms throughout the country—consultancies, design companies, technology companies and manufacturing organisations—whose business will inevitably decline because the industry has less money to spend, because the Treasury has taken it. There is no other way of looking at this tax change.

Tom Harris: IHS Energy Group Consultants has produced a table showing the tax take from oil in different countries, based on certain criteria. It is 88 per cent. in Norway, 70 per cent. in Canada, 75 per cent. in Australia, 80 per cent. in Angola, 65 per cent. in Brazil and 66 per cent. in the United States. The British figure has risen from 35 per cent. to 40 per cent.

Chris Grayling: The hon. Gentleman can quote all the figures he likes, but the fact remains that if £600 million is taken from an industry it has less to spend. That is basic 2 plus 2 arithmetic. Inevitably, companies operating in the North sea will have less money to spend on people, equipment, new designs, new investment and new exploration. It stands to reason. There is no escaping that reality. Moreover, our balance of payments will be affected.

Howard Flight: The crucial point is that the marginal tax rate, which relates to new investment, will rise to about 75 per cent. The overall impact on the industry depends on that marginal rate.

Chris Grayling: That point speaks for itself.
	Exports are bound to be affected. One of the problems experienced by many of our manufacturing firms results from the weakness of the euro in particular, which has led to a substantial imbalance in the currency markets and has put our manufacturers at a significant disadvantage. Every additional step taken by Government that worsens the financial position of domestic manufacturers is likely to result in equipment being bought from overseas. The firms that are investing will decide that they can save money by going to other countries—and they will have to save money, because they will have less disposable cash following the tax increase.
	The consequence of all that is inescapable: there will be a cost to jobs. There is no way in which it will not feed through to the jobs market. The chief executive of the Aberdeen and Grampian chamber of commerce, in the constituency of the hon. Member for Aberdeen, Central (Mr. Doran), has said:
	"There is no doubt that there will be a knock on effect on jobs. These changes will not just affect the oil majors but the countless small businesses operating in the supply chain."
	That is what the chief executive said. Members should not take that from me; they should take it from her.
	The measure will affect jobs and the industry, and damage the Scottish economy. It is badly thought out and badly timed, and it deserves to be opposed.

Malcolm Bruce: During my 19 years as a Member of Parliament, I have been around this course rather more often than I would wish.
	Let me, like others, recall what happened in 1993, when tax changes were introduced without consultation. Whatever the longer-term implications, the short-term consequences were immediate and dire. Rigs were stacked, people were laid off, and there was a serious downturn in activity. Wildcat exploration has never recovered from the tax change—and that certainly has long-term implications.
	As I said earlier in an intervention on the hon. Member for Arundel and South Downs (Mr. Flight), we should also remember what happened in the House when those changes were proposed. My party opposed them. It was the only party to do so, although I think the Scottish nationalists supported us when we forced a Division. In the Division Lobby, the then shadow Chancellor—the current Chancellor—rushed across to ask why I was forcing a Division. I said I was standing up for jobs and investment in the Scottish oil and gas industry. I accept that it is in fact the United Kingdom oil and gas industry, but it is heavily concentrated in the north-east. The right hon. Gentleman's response was "But when I am Chancellor, I will need that money. I am not going to support you."
	I must tell the hon. Member for Aberdeen, Central (Mr. Doran) that two wrongs do not make a right. The hon. Member for Arundel and South Downs, on his own behalf if not on that of his party, suggested that the Conservatives might have learned something from that approach. Unfortunately, so have the Labour Government, to the detriment of the industry.
	I am not surprised that the Chancellor has done this. He has been yearning to do it since the day he walked into No. 10—[Laughter.] The right hon. Gentleman does, in fact, live at No. 10 Downing street. I meant the day he walked into the Treasury, although of course he is longing to walk into No. 10 through the front door.
	The point is that the Chancellor has always seen the industry as a milch cow to fund whatever programmes he has in mind. He has never seen it as an industry. It is surprising and disappointing that he has not, given that he is a Scottish Member.
	I am fairly certain that when the Chancellor instituted the review he intended to review the tax and increase it. Thanks to effective lobbying by the industry, and indeed by the hon. Member for Aberdeen, Central and others—and, I accept, the background of a low oil price—he was persuaded that there was no justification for such an increase, and he did not proceed.
	I think those in the industry, having initially feared the worst, emerged feeling that they had engaged in worthwhile consultation, and had had a real opportunity to explain to the Chancellor the complexities of the industry and the dynamics of taxation. They felt that an understanding had been reached—that the Chancellor would not change the tax regime in future without consultation. It is pretty clear, however, that the Chancellor was shedding crocodile tears, or donning a disguise. His initial instincts remained unchanged, and in this Budget he did what he would have liked to do in his first: he grabbed the money.
	It is interesting to hear Labour Members who I suspect know in their heart of hearts that what we are saying is true trying to justify the position that they have acquired. It is all very well for the hon. Member for Aberdeen, Central to say that the capital uplift will in itself enable investments to go ahead. Of course we welcome the uplift, but for investment to take place companies must have the money. If that money has been creamed off in tax, there is less to invest, and there will be a consequent impact on the number of investments that take place with or without the uplift. I think the industry is conceding that across the board.
	The most damaging effect, however, is the shattering of confidence. The industry felt that it had an understanding with the Government—that the Government recognised that it operated against a background of long-term horizons. It has to make calculations above oil prices that fluctuate a great deal. One thing it looks for from the Government is a degree of stability in the tax regime. I agree with the hon. Member for Banff and Buchan (Mr. Salmond) that that does not mean never changing the regime. None of us is suggesting that. I have certainly not opposed every tax change proposed for the North sea; but I have vigorously opposed changes that have been applied without consultation and full assessment, and which have been damaging. There have been a number of such changes, and this change is in that category.
	Yesterday, the Financial Secretary put on a fairly typical bravura performance when he appeared before the Scottish Grand Committee. Nevertheless, he let slip some pretty serious errors. He compared the performance of the Scottish economy to that of the Japanese economy, which was a particularly unfortunate comparison. He also accused those of us who expressed genuine concerns on behalf of the industry, businesses and our constituents of special pleading on behalf of one sector of the economy. That one sector of the economy accounts for about 20 per cent. of all fixed investment in the United Kingdom. Collectively, it spends £8 billion a year. It is a pretty important sector that spawns Britain's biggest company. We heard one or two full-blooded red socialist speeches from Labour Back Benchers—perhaps we will hear some more—about how we should squeeze these big capitalist corporations until the pips squeak. Doing so might warm the red blood in their veins, but they should recognise that, if we squeeze those corporations too hard, the investment will not flow, jobs will dry up and we will undermine the industry's long-term future. We need a clear strategy in terms of what we want out of the North sea in the next 10, 15 or 20 years. Those short-term changes would completely destroy the credibility of such a strategy.

Jim Sheridan: The hon. Gentleman's party is well known for arguing that revenue raised from taxes should be invested in public services. He opposes these proposals, but how else does he suggest that tax revenue be raised to fund the public services that his party is glad to tell everybody they support?

Malcolm Bruce: That is a perfectly fair intervention, but I should point out that we are debating the Government's proposals. We had our own alternative Budget, and we set out our platform for how to raise the money. We were particularly in favour of increasing tax on very high earners—a proposal that old Labour also used to be keen on. We would have imposed a 50 per cent. tax on earnings over £100,000, which would have yielded substantially more than changes in oil tax.
	The best way to raise taxes is a matter of judgment, and in our view this tax change is damaging to jobs, to investment, and to the long-term health of the economy. We are entitled to argue that as a perfectly reasonable debating point.

John Bercow: The hon. Gentleman is making a characteristically sensible speech. Given the naive anti-capitalist prejudices that still permeate the thinking of all too many Labour Members, would the hon. Gentleman care to comment on the enormous capital requirements of UK continental shelf projects, and the very long time scales over which returns on capital are achieved?

Malcolm Bruce: The hon. Gentleman knows perfectly well—this is the point of his question—that we are talking about field lives of 20 or 30 years, and sudden fluctuations that have to be averaged out over time. The industry has to make very fine judgments on whether to invest at all. In introducing further uncertainty into a business that is already uncertain, the danger is that financial planners, in particular, might conclude that is better to invest where the uncertainties are less. It is all very well talking about taxation regimes in, say, Angola, but what concerns the industry is cash flow, the likelihood of finding a field, and the cost and scale of production. When it considers those factors as a package, there are many more attractive prospects than the North sea. We must woo the industry and keep it here.
	The issue is one of great concern. Although the hon. Member for Aberdeen, Central and I are in broad agreement, he is missing one point. It is fine to promote enhanced recovery, and to encourage companies to squeeze as much as possible out of the existing infrastructure, and I accept—with the qualifications that I have already identified—that the capital uplift makes a contribution in that regard. However, it is also important that the industry be encouraged to make wildcat wells in the interests of serendipity. Such exploration has declined to an alarming extent.
	We support the amendment tabled by Conservative Members, and happily support the amendment in the name of the hon. Member for Banff and Buchan. It is not a wrecking amendment but a cooling-off amendment. It points out that the Government have introduced changes that have not been fully evaluated, and which could prove deeply damaging. It invites them to delay those changes, and to discuss with the industry not necessarily abandoning them, but whether other measures could be introduced on a case-by-case basis to ensure that the damage that we fear can be avoided. Such measures might involve a combination of capital uplifts to encourage more wildcat exploration wells, or even "serendipity" appraisal wells. People forget that many holes are drilled that prove dry. Looking for and producing oil is a very uncertain science. Such measures could also include additional help, in the form of innovative techniques, for companies that want to develop technology.
	We do not expect the Government to abandon their proposals, although we can vote on that issue as well. The amendments invite the Government to wait for a year, consult in the light of their proposals, and before implementing them, establish on a field-by-field basis whether offsets can be found to minimise, reduce or preferably eliminate the potentially damaging effects. That seems to us a constructive engagement. I suggest to the Economic Secretary that that would also genuinely restore some of the confidence that has been lost. When I made that point before, she shook her head, but the Treasury needs to recognise that it has seriously damaged a relationship built over many years, in which the industry and the Government had a degree of confidence that they understood each other. The industry now feels that the Government do not understand, and that they are not prepared to accept what the industry regards not as special pleading, but as a genuine argument about how best to retain enough money to maintain investment, thereby maintaining the long-term future in the North sea that we want.
	Professor Alec Kemp has said that, if these tax changes are implemented, the Government would yield an extra £3.7 billion from the North sea, even if the oil price fell to $15. In fact, I think he is wrong, because he is working on a flat-line presumption. Most people in the industry say that, if the oil price fell to $15 under such a regime, activity would drop, and so would revenue.
	That brings me back to another somewhat ill-judged intervention by the Financial Secretary during yesterday's Scottish Grand Committee. He alluded to the whisky industry, and boasted that, for the fifth Budget in a row, there has been no increase in spirit duty. He suggested that that is a fine achievement, and given that I have several distilleries in my constituency, I have some sympathy for that view. However, what the Financial Secretary did not say was that the last time a Chancellor—the right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke)—increased such duty, he got less revenue the following year, because the increase had a negative impact.
	We need an impact study, and the hon. Member for Banff and Buchan might also want such an assessment to point out the possible range of revenue implications for the Treasury. The forecast returns might be rather less than anticipated, because of the downward effect on activity.
	Although the Economic Secretary is perfectly capable of making a robust defence of the Government's position, without qualification, I urge her not to do so. Instead, I urge her to accept the genuine worries that the tax could have on long-term planning, development and investment in the North sea. I urge her to listen to those of us who have monitored the industry for many years—in my case, I have been close to the industry for 30 years. On every occasion that I have specifically lobbied against changes that I perceive to be damaging, I have been proved right and the Government of the day have been proved wrong. Therefore, the Government might have to act the wrong way round: to take a decision and then consult is sometimes better than taking a decision and then ignoring the evidence.

Ann McKechin: In today's debate, it is essential that we have regard to the context of the current state of the oil and gas industry, both nationally and internationally. It has not been a focus of the debate, but oil and gas are finite and valuable resources and they should be viewed as national resources for the benefit of a nation's citizens rather than just an industrial commodity. The UK is no different in seeking to maximise the benefit of those resources while at the same time encouraging investment and growth.
	As my hon. Friend the Member for Glasgow, Cathcart (Mr. Harris) pointed out, the UK tax regime is favourable for the industry. For example, Norway, which operates adjoining fields in the North sea, has a tax take-up return of 88 per cent., so the increase to 40 per cent in the UK is more than reasonable. It should also be borne in mind that oil and gas producers have benefited in the Government's recent Budgets from a reduction in corporation tax, low interest rates and the introduction two years ago of roll-over relief. We must view this proposal in the general context of taxation in the past few years.
	Much of our oil exploitation is carried out by some of the largest multinational companies in the world. BP alone produces 20 per cent. of our oil and gas. Given the huge wealth of those multinationals—bigger than the gross domestic product of many nations—it is perfectly fair and equitable for their tax burden to include a contribution to the health of the citizens whose natural resources they exploit to considerable profit.

Robert Smith: Does the hon. Lady realise that less than 15 per cent. of BP's profits come from the North sea and that this tax will only apply to that area? As she said, it is a major international company that can choose to invest elsewhere if it does not wish to pay the tax.

Ann McKechin: The hon. Gentleman shows precisely why the tax increase will not have a substantial impact on BP's profitability or investment policy, as has been argued this afternoon. BP's decisions will have more to do with the return that it gets from its investments, the existing investments in the field and the security of supply, which contrasts with some other parts of the globe—as the hon. Gentleman is well aware.
	As I have said, it is reasonable for tax policy to require oil and gas companies to contribute to the health of citizens. Let us not forget that with the worldwide increase in oil prices in recent years the profit levels from North sea exploitation have remained very high. Currently the UK continental shelf makes significantly higher profits than the rest of UK industry, with a pre-tax rate of return of 34.3 per cent. last year against a UK average of 12.2 per cent. Perhaps that is one of the reasons why in the last year BP has sought to justify an increase in the basic salary of its chief executive, Lord Browne, of 58 per cent., taking his salary to a staggering £3 million a year. Added to that, he has been awarded further benefits that bring his package up to £6.2 million. No sooner had Lord Browne secured his increase than the new executive chairman of Shell won an 82 per cent. pay rise, although that only took his salary to a very modest £1.59 million.

Bob Blizzard: In view of my hon. Friend's argument, does she agree that it might be a better idea to tax Lord Browne, rather than an industry in a way that might cause problems with jobs?

Ann McKechin: I am sure that Lord Browne's national insurance contributions will rise, because he is paid above the threshold.
	The reaction of the oil companies is all too predictable. Their financial advisers were preparing detailed reports last autumn about the effect of this tax, so it is naive to say that they did not predict it. They were aware as far back as 1998 that the Government's review of the North sea fiscal scheme concluded that aspects were unsatisfactory and that one of the two main reforms identified was a supplementary charge on North sea profits. Given the rapid increase in profits in the past three years, the use of such an option should not have come as a total shock. The oil industry is cyclical in nature and is currently enjoying a boom time that gives support to the argument for higher taxation—indeed, one which was advanced by the hon. Member for Banff and Buchan (Mr. Salmond) in earlier years. For the major companies such as BP and Shell, the UK only accounts for a small amount of their global trade—as the hon. Member for Gordon (Malcolm Bruce) pointed out—and the lack of reaction in the stock market to the Budget announcements is, I believe, a good signal of how little the changes will affect those companies' profitability.
	At the same time the Government are well aware of the need to preserve investment and employment. The PILOT initiative has been working successfully to maximise the potential of what are now mature fields in the industry—especially in fallow fields—and to retain our skills base. More than 70 licence holders are currently active on the UK continental shelf, which—according to the industry's own economic report in 2001—is a strong indication that despite its maturity it still contains a wide range of oil and gas companies. In fact, in today's edition of the Daily Record, the Shell company is advertising for yet more technicians in the North sea oil industry. The tax changes do not seem to be affecting that company's continued investment in the sector.
	Encouraging new companies is likely to be the way forward in the new market emerging in the mature fields. That is why I welcome the Government's decision to provide a 100 per cent. first-year allowance for capital expenditure.
	The new tax regime will certainly have both winners and losers. New investors will benefit the most, and in some cases their tax burden will be less. The relative newcomer Venture Productions was quoted in The Scotsman of 18 April as welcoming the proposal, and said that it would provide short-term tax relief that would help development.
	Oil taxation specialist Martin Kirkham is a KPMG senior manager. He has stated:
	"The new companies are going to be the winners because they will get a higher rate of relief than they would have previously. People who are sitting on their assets and who are producing and not exploring or developing are likely to be the losers."
	That is exactly the investment structure that should be followed in the industry.
	The Government's proposals are sensible and well balanced. They will give us the necessary income to invest in our public services. At the same time, they will encourage investment in this important industrial sector.

Michael Jack: I am pleased to be called to speak in the debate. I want to analyse the Government's proposal, and to speak specifically to the amendments. I have some sympathy with them, as they offer the opportunity to pause to reflect on the matter.
	I have been interested by the Economic Secretary's body language in the debate. From time to time she has smiled, or shown that she does not agree with what is being said, but I do not sense that she feels an obligation to the Committee to justify and explain the Government's policy. I know how these things are done, and I suspect that the Oil Taxation Office will have provided a raft of arguments for her to use to justify her position. I do not expect her to admit that there may be merit in the argument of those who oppose the proposal.
	However, it is time for a more forensic examination of the Government's use of language. The Red Book states that the changes will ensure
	"a regime that raises a fair share of revenue and encourages long-term investment".
	Will the Economic Secretary say what the word "fair" means? Will she say, in some detail, why the present regime is unfair, and why there is a need to raise more revenue from a sector that the Government believe has been successful? Will other industries in effect be hit by the windfall tax that the supplementary charge could be interpreted to be? That is the wider question, and it is why the amendments would either reduce or remove the supplementary charge. Others will be waiting in the wings to know the Government's exact intentions.
	I am intrigued too by what the Red Book reveals about the research and development tax credit. The Government are putting forward the thesis that much economic activity can be stimulated by an expenditure of £400 million, but the Red Book seems to claim that removing £450 million in year two of the proposed regime will have no effect at all. The two arguments cannot be right.
	We need to look carefully at the justification sustaining those Labour Members who have spoken against the amendments. A few years ago, the Government were willing not to alter the current North sea fiscal regime, but the Red Book now says that that regime
	"fails to strike the right balance between promoting investment and taking a fair share of revenue".
	On Second Reading I asked the Chief Secretary to the Treasury if he would be kind enough to provide an economic justification for the Government's position. I asked him if he would place in the Library of the House some form of business model that would provide a justification for the phrase "fair share". In its own way, the evidence that the hon. Member for Arundel and South Downs (Mr. Flight) kindly provided makes a case for the amendments. The covering letter talks about the need for the North sea fiscal regime to strike the right balance between stimulating investment and getting a fair return. I would like to know what "fair" means in this context. Let us look at the example. The word that shines forth from the Treasury's analysis is "hypothetical".
	The Chief Secretary did not respond in the way that I had hoped. I thought that he would produce an analysis showing the overall investment position, the factors that would be taken into account by the oil industry in determining its investment and a review of the taxation regime. I thought that there would be some attempt to provide us with a business model of the North sea gas and oilfields to show that the amount that the Government want to take out by these tax measures would not have any impact on investment intentions.
	In that context, I was intrigued by the remarks of the hon. Member for Glasgow, Maryhill (Ann McKechin), most of which were predicated on an analysis built on the attitudes of BP and Shell. However, many of the representations that have been made to me have been from smaller oil companies. Many of them finance their investment opportunities in places such as the North sea oilfield and off the west coast of the United Kingdom, where my interest lies, by debt financing. They operate a very different financial regime; they are not the big oil barons of this world and this measure will have an impact on them because of the way in which they conduct their business.
	Coming back to the Chief Secretary's example, the Government's justification, as published to date, is one hypothetical, arithmetical net present value calculation on one field using one set of assumptions. The real world of oil finance varies considerably. I want the Economic Secretary to describe in detail what the real world impact is rather than giving a hypothetical project justification. Although the Treasury may draw some comfort from the fact that it shows in net present value terms that under its proposed regime for that field, which invests £100 million, there is a gain in return, no sensitivity analysis has been made by making a marginal change to some of the variables. No analysis has been made of existing fields.
	One of the problems with the measure is that it will be introduced at a given moment in time. We have no information from the Treasury about the rates of return for fields that are currently in production but which will, under clause 90, be affected on their present earnings by the arrival of the supplement. The amendment to reduce or postpone its introduction would enable us to look at that aspect.

Malcolm Bruce: The right hon. Gentleman is making an important point. Does he acknowledge that some companies made investments a few years ago for which they did not get an uplift because the forecast oil price was not met because the price collapsed? Only now are they getting the returns that they anticipated, just to find that their payback has been further cut by these proposed changes.

Michael Jack: The hon. Gentleman makes the point that this is a variable business. I am aware that when any business is threatened by an increase in tax, it cries foul. Businesses can sometimes bear additional tax charges just as the citizen has to make provision for additional tax charges because nobody can predict what the Treasury's demands will be year on year. The oil business deals with long-term investments, and as Members on both sides of the Committee have said, people in the oil industry wanted a degree of stability in planning their forward investment strategy. However, they have now been hit by an element of instability.
	I received a copy of a letter, which was sent to the Chancellor by the Non-Operators Forum on 24 April. It states:
	"The taxation changes announced on 17th April give us a great deal of concern, particularly since we had been working extremely hard with officials and ministers in the Department of Trade and Industry towards improving the commercial environment in the North Sea to encourage further investment."
	The letter also mentioned the PILOT forum—as have other Members who have spoken in the debate—which is also designed to improve extraction rates and new exploration in the North sea. The 17 companies in the Non-Operators Forum are at the lower end of the scale and they stressed the impact of the proposal, especially as it came on 17 April. The companies made a second, and important, proposal on which I should like the Economic Secretary to reflect.
	The Government justify their position by arguing that new investment can be funded from cash flow, but there are two flaws in that argument. The first is that not all new investment will be so profitable in year one that all the 100 per cent. allowance can be used up. The Treasury's example assumed that a field is fully profitable in year one, but that might not be the case, so as profits build up in years two, three and four, that must adversely affect the net present value calculation. There is a flaw in the Treasury's argument.
	There is also a problem for fields that are funded by borrowings. Currently, the clause would not permit the costs of extra borrowing to be offset against the new 10 per cent. charge. That is another failure in the argument. Faced with those problems the smaller oil companies—those with existing fields—would be harshly penalised. It might be true—as the hon. Member for Glasgow, Maryhill said—that a large, multinational company could, in theory, absorb the effects of the charges on some of their activities. However, as has been pointed out, they do not currently exploit the North sea and the offshore continental shelf for the very reasons given by the hon. Member for Aberdeen, Central (Mr. Doran).
	The debate has been strongly focused on oil, but I should also like to hear the Economic Secretary's justification for the proposals as regards gas. Gas prices are considerably lower than they have been for some time, and it is likely that there will be significant effects on gas exploration.
	We need to reiterate the questions about the costs of the proposals. The amendments correctly call for the reappraisal, justification or reduction of the costs. Professor Kemp's work has been much quoted, so I feel justified in referring to it. He has carried out some sensitivity analysis of the effects of the measure. Even assuming an oil price of $15 a barrel, he shows that, cumulatively, until 2010, there would be a yield of £3.7 billion from the North sea. A price of $25—perhaps rather high on the scale—would mean that the yield was £9.6 billion. A price of $20 would give an amount of £6.5 billion. Those are serious amounts.
	The Chancellor's analysis in the Red Book covers only the next three financial years. It seems to me that the Treasury must have decided that the measure would not bite this year and would have only a small effect next year. However, given that it will really start to bite only in year three and that the oil industry looks to the long term, we have completely dodged an analysis of the full-scale effect of the proposal on the long-term investment opportunities of the industry—[Interruption.] The Economic Secretary shakes her head. I hope that she can offer a justifiable argument that such considerations would not have an impact, given the fact that oil fields are developed over 10, 15 or 20 years.

Alex Salmond: May I draw the right hon. Gentleman's attention away from the Economic Secretary's body language for a second? Is he aware that the Wood Mackenzie analysis shows that, after the fifth year, the full-year effect, once it has worked through at the current oil price, will be more than £1 billion a year?

Michael Jack: The hon. Gentleman, who speaks with great authority and knowledge on this subject, makes a very important additional point.
	One very interesting thing is the number of different measures that can be used to determine rates of return. I should like to ask the Economic Secretary why the Chief Secretary used a net present value calculation based on a 10 per cent. discount rate when he wrote to me and other hon. Members, whereas the Paymaster General chose an altogether different calculation based on an IHS Energy Group analysis using a 12.5 per cent discount rate to justify her position on Second Reading.
	Interestingly, in justifying taxation regimes for different oilfields, the Inland Revenue uses the very same analysis as that used by the Paymaster General on Second Reading. However, if I understand the analysis correctly, the Inland Revenue advised the United Kingdom Offshore Operators Association that the marginal tax rate in the United Kingdom would be 73.75 per cent. under the current proposals, but that, in fact, for places such as the Gulf of Mexico and Angola deep-water fields the respective rate would be at 60 per cent. and 71 per cent. Those figures are relevant because they illustrate the fact that we are talking about an international and dynamic oil investment regime, which the proposals could well disrupt in the long term.
	I also support the amendments that argue that this measure be postponed because of certain accounting impacts. Again, I should be grateful to the Economic Secretary if she would comment on those effects. Obviously, the first amount of the current tax charge would affect profitability, as has been said, on the 10 per cent. supplementary rate, but I am interested to know whether the Treasury has taken into account the balance sheet effect of the fact that deferred taxes will have to be revalued. That will obviously affect the profitability and future position of many companies.
	I should be interested to know whether the Economic Secretary thinks that those accounting implications will affect the ability of those companies to raise funds for their future investment plans. The Government do not seem to have fully considered the effect of those implications. It is easy to cry foul when any extra increase is imposed, but, in the light of the arguments adduced so far, it is up to the Treasury meticulously to argue a case for imposing extra taxation on the industry against the background of the critical appraisal that has been made so far in the debate.

Bob Blizzard: There can be no doubt that the key issue is what effect these oil and gas tax changes, especially the one proposed in clause 90, will have on investment. Investment is all about the future; we cannot have such a good future if we invest less. I, too, should like to know what assessment of the tax changes' impact on investment leads the Treasury to conclude that the changes represent the right balance between the nation's taking the proper share of its asset, which we would want to do, and securing and stimulating investment for the future.
	What assumptions has the Treasury made about the impact on investment in the figures that it has produced so far? For example, we have all seen the Red Book figures for the net tax take from the industry to the public purse in the forthcoming years. Do those figures assume the same level of investment as that assumed before the tax changes were proposed, or do they assume a reduced level of investment? Has the Treasury discounted the figures in the light of that? That important issue needs to be clarified.
	Many hon. Members have referred to the work carried out by Professor Kemp. The interesting aspect of Professor Kemp's work is that, while the Red Book looks only at the years up to 2006, Professor Kemp looks beyond that. He comes out with some staggering figures of up to £1 billion a year. Altogether, between now and 2010, Professor Kemp says that the net tax take from the industry will be £6 billion. Does the Treasury really believe that we can take £6 billion out of the industry and avoid having an adverse effect on it? I find that difficult to believe, as there will be less money available to invest. That must have an impact on where multinational companies direct their investments around the world. Whatever we think of oil companies, they do direct money around the world, and we must face that real-world situation and act accordingly.

Frank Doran: All the assumptions made by the Opposition, which my hon. Friend may also be making, are that, somehow, North sea money is ring-fenced. In fact, profits from the North sea do not stay in the North sea—they go to Dallas, Houston, San Francisco or wherever the company's headquarters are. Exactly the same factor applies to investment decisions: they are made on the basis of the attractiveness of the regime and the likely return. We must not operate on the basis that £6 billion is coming out of the industry, because it is not. There will be an impact on the attractiveness of the area, but not to the degree suggested by my hon. Friend.

Bob Blizzard: I thank my hon. Friend. I was not making that assumption—quite the reverse. I was saying that a managing director of the part of an international company that resides in this country must argue, whether in Houston or elsewhere in the world, as to what slice of the global investment will come to this country each year. I have a letter from a managing director of an international company with a portfolio here—I shall not name the individual—who says, when making that case at the company's worldwide headquarters, that
	"It will be harder for us to attract capital investment into the UK".
	The fact that the money is not ring-fenced is part of the difficulty.
	Another point is the signal that is sent out. As the oil price cannot be predicted, it is necessary for as many of the other factors as possible to be stable. If we have a tax regime that can change around rapidly, that will be taken into account by an industry with very long-term investment.

Alex Salmond: It is not possible to ring-fence investment in an international market, but investment can be locked in if consequential tax changes are made. So far in this debate, exploration, appraisal and additional uplift, financing charges for field development, more tax relief and more uplift for incremental development have all been mentioned. All those measures should be included in the Treasury's analysis—which we do not have—of the impact of possible changes. Those suggestions do not even seem to have been considered.

Bob Blizzard: I agree in the sense that the key to the future is the amount of exploration and development that can be stimulated at any one time. If that dries up, the future looks bleak. It is therefore important to send out the signals that will encourage more of that activity, not less.
	To return to the Red Book figures, they are lower than those that Professor Kemp predicts for the immediate years up to 2006. I therefore wonder, again, whether the Treasury has done some discounting. Has it estimated what can safely be taken out of the industry without damaging investment? If so, as we reach those years, if the tax revenue is greater than the Red Book predicts, will it be prepared to adjust that tax, for example, by reconsidering whether financing charges should be made deductible on a 10 per cent. basis? At the moment, the proposal is that they should not. I would like an answer to that.
	Other impact assessments should be considered. What will be the impact on the 20th licensing round? What will be the impact on the PILOT targets? Those targets are Government policy, because they have been agreed between the Government and the industry. However, I have seen nothing about them. What will be the impact on the PILOT organisation itself? I have a letter from someone who writes:
	"I have expended a great deal of time and effort in developing measures to stimulate greater exploration activity on the UKCS . . . under PILOT. I, like others, now find it very difficult to see where this initiative goes next."
	That will be the reaction of a number of people.
	What will be the impact on the amount of indigenous energy resources that are recovered in future years? Are we accelerating to the point at which we shall have to start importing oil and gas? Have we considered the effect on the balance of payments if that day is hastened forward?
	I wish to make a point that is relevant to amendments Nos. 2 and 22. One of the perceived unfairnesses with the changes relates to people who have made recent investments as a result of the collaborative PILOT atmosphere in which the Government encouraged people to invest in fields in which they might not otherwise have invested. Those people will not now receive the benefit of the 100 per cent. capital allowances, but they will pay the tax from 17 April. They did what we asked them to do and put their toe into the water. I am afraid that their toe is probably feeling a bit hot at the moment. Will the Treasury consider some form of transitional arrangements for companies that have done what we asked them to do? We could either give them exemption for a period or apply some of the 100 per cent. allowances retrospectively. That would be playing fair with people who have done the right thing.
	I also feel for those companies that have shown commitment to the UK by having a large percentage of their portfolios here. They will be hit much harder than the companies that my hon. Friend the Member for Aberdeen, Central (Mr. Doran) mentioned, which have large portfolios around the world. We must be careful that we do not punish those who have shown the greatest commitment to the country by investing in the UK continental shelf.

Bill Tynan: Does my hon. Friend believe that a pre-tax profit of 34.3 per cent. in 2001 was an inadequate return on the investment that companies made in the North sea? If you do not, what level do you believe would be an adequate return?

Roger Gale: Order. The hon. Gentleman should address other Members through the Chair.

Bob Blizzard: I accept what my hon. Friend says. That is a generous return. However, when the oil price is $10 a barrel, the return is nowhere near that figure. It is difficult to link the tax to the oil price, because one cannot predict the oil price. I am arguing that we should ensure that we get the full investment. The longer we keep the industry going, the longer we shall receive the benefits.
	I want to say a little about royalties. A tax change in terms of the supplementary charge will come in straight away and the Government have made it clear that they want to abolish the royalty. However, there will be a consultation period and the worry is that there could be up to a year's gap between the two things taking place. The industry has told me that it believes that the consultation could be carried out in one month, so when does the Treasury intend to begin the consultation? Will it commit to a short consultation period and can we have a firm date as soon as possible for the abolition of the royalty? Will the Treasury consider whether it is possible to carry out the consultation in one month, because it is important, if we are to attract new investment, that people know soon when the royalty will be abolished? It strikes me that no one will invest until they know when the royalty is to be abolished. If we are trying to attract investment, we do not want to wait too long, so it is important to have those commitments on royalty.
	Hon. Members have made international comparisons and highlighted different tax regimes around the world, but tax rates cannot be considered in isolation. What matters to investors is the overall expected return, which takes into account the cost of finding oil and gas and the chances of finding them. That cost varies around the world. A fair assessment of how attractive we are in the international investment game takes into account development cost and the field size, which gives an idea of how many years and how many millions of barrels will be produced for the initial investment. That is related to the field's maturity. When we add up those considerations, it is clear that the North sea is not especially attractive in an international context. We must be careful that we do not make it more unattractive.
	We must also ensure that we compare like with like. Some of the figures that have been bandied around are for standard developments. We can only compare deep-water developments with deep-water developments. Perhaps the easiest comparison to make is with Norway, because we are both dipping in the same area. Norway has similar unit costs of $8 or so a barrel and a similar tax regime: Norway's is 78 per cent.; ours is increasing to a marginal rate of about 74 per cent. The difference is that the fields in the Norwegian sector are 100 million-barrel fields, whereas the fields that we are developing are 25 million to 30 million-barrel fields. It is clearly less attractive to invest in smaller fields.
	Although Norway will face the same challenge as us, its fields are not in the same state of maturity and it is doing fine out of larger fields. When those start to run out and it is considering developing smaller fields, it will face the same problems as us.

Robert Smith: Like the hon. Member for Banff and Buchan (Mr. Salmond), many of my arguments and concerns were voiced on Second Reading, in the Budget debate and in the Scottish Grand Committee—[Interruption.] The problem is that the Financial Secretary made his statement in the Grand Committee and then left. If he left this debate before the hon. Member for Banff and Buchan finished his speech, he will have missed the important point that came out of yesterday's Grand Committee, in which one member of the Cabinet recognised that there will be an impact on jobs. Given Cabinet collective responsibility, one would assume that the Government hold the same general analysis. If there is to be an impact on jobs, it behoves the Government to say what that might be.

Tom Harris: In defence of my right hon. Friend the Secretary of State for Scotland, she did not say whether the measure would have a negative or positive impact on jobs.

Robert Smith: The right hon. Lady did not have to. She said:
	"My assessment of the jobs impact is that if we link the supplemental tax on profits to the first-year allowances and the abolition of royalties, we should minimise impact on our jobs."—[Official Report, Scottish Grand Committee, 8 May 2002; c. 21.]
	I suppose that, arguably, she might have been saying that the abolition of royalties and the first-year allowances are designed to make more job losses, which would support the hon. Gentleman's way of looking at the issue. Clearly, however, she recognised that the tax on its own will have a major impact on jobs and that the Government hope to limit the damage by introducing other measures.

Alex Salmond: The hon. Member for Glasgow, Cathcart (Mr. Harris) seems to be suggesting that the Secretary of State for Scotland is trying to minimise a job boost in Scotland, which makes what the Government have been playing at over the past year in general manufacturing industry altogether clearer.

Robert Smith: The Secretary of State was clearly saying that there will be a negative impact as a result of the measures. The question is the scale of that impact; she tried to play it down, but some of us are worried that it could be significant.

Tom Harris: You hope so.

Robert Smith: No, we do not.

Tom Harris: Doom merchants.

Robert Smith: We are not; we are reflecting our constituents' concerns. Some of them have already experienced such an impact, when the tax changes alluded to by my hon. Friend the Member for Gordon (Malcolm Bruce) were introduced. One of them came to my surgery in 1997, after the Chancellor threatened to do something similar, and said that he did not want what happened to him, his business and all the people he employed the first time round to be repeated under the present Government. Some of us have been concerned ever since; our constituents who have worked in the industry for a long time, understand how it works and know what has happened, want us to impress their anxieties on the Committee. We are doing so not because we are doom merchants but because we are success merchants—we want to promote the wider benefits of the industry.
	When the Financial Secretary dismissed the industry as just one sector—[Interruption.] The Financial Secretary may care to remember what he said.

Paul Boateng: I did not dismiss the industry, but I did dismiss the hon. Gentleman's arguments.

Robert Smith: The Financial Secretary dismissed those of us who expressed concern about the oil industry for promoting just one sector of industry. However, the oil industry is not only a major sector for employment and investment but is of strategic importance, as it gives this country the luxury of our own energy supply on our doorstep. The Minister for Industry and Energy is worried that we will lose that supply in the long run—hence the report by the performance and innovation unit on energy supplies.
	The Treasury and the Department of Trade and Industry need to be more joined up, which was the point of the PILOT initiative and the taskforce. Those who accuse us of being doom merchants may not have heard the praise that we have heaped on the Government in the past few years for the taskforce's achievements. The Financial Secretary did not attend previous sittings of the Scottish Grand Committees and did not hear that praise—[Interruption.] No, there were benefits, as we have seen, in signing up to the commitments in PILOT; the taskforce had a positive outcome in bringing together the Treasury, the DTI and the industry. Unfortunately, the Treasury has chosen not to learn the lessons of that, and we are now facing a surprise consequence for the industry.
	The hon. Member for Waveney (Mr. Blizzard) made an extremely important point that comparisons must not be hypothetical. The right hon. Member for Fylde (Mr. Jack) made an equally important point that Treasury analysis has been based on hypothetical analysis. People who make investment decisions base them not on hypotheses but on real possibilities. Comparisons between fields must take account of the fact that our fields are smaller now, and we need a regime that recognises that. There are larger fields elsewhere, where returns and the risk-reward ratio are better, so the country must maintain attractiveness for the sake of the tax regime.
	The amendments on the timing of the tax are useful because they make the point, as others have said, that the Government's proposals are out of phase. The royalties are supposed to be the upside of the change, but we do not know when they will be sorted out. It would be far better to postpone the tax. Indeed, if analysis proves that it will have a negative impact, the Government should not merely postpone it; they should withdraw it. There should be a chance to sort out royalties and introduce proposals on them as soon as possible. An impact assessment should be made; we need far more substantial Treasury data in the Library than the two sides of A4 produced so far.
	The Government are committed to consultation. The hon. Member for Aberdeen, Central (Mr. Doran) said that the industry was asleep, but communication is a two-way process. If the Government wanted genuine consultation, they should have woken the industry up first, thus negating the element of surprise that causes long-term damage. No one knows what the Government's intentions are, whether the Chancellor is just trying it on this year, and what the tax regime will be in the future.
	I repeat what was said in the Grand Committee, as it is relevant to the assessment of the impact of the tax. Labour Members, trying to straddle a compromise between recognising the concerns that will be evident in their constituencies, and their desire not to upset their colleagues on the Front Bench too much—because the Chancellor has made his statement and as Back Benchers they do not want to cross him—come up with the strange argument that the price is high at the moment, so it is okay to impose the tax now.
	However, there is no undertaking that the tax will go away if the price drops. The tax, according to the Chancellor, is there to stay. It is in his Red Book for several years to come. Some in the industry have been privately getting the message that when the price falls, they can lobby the Government for a lower tax regime. That is no way to make a planning horizon for investment. It provides no sense of stability to tell the industry, "Come back and lobby us for a tax cut and we might see what we can do." In order to have the confidence to invest, people need to know in advance what the tax regime will be.
	We need a return to such stability. The amendments provide the chance for a breathing space.

Malcolm Bruce: Is not the problem the fact that, in every other sector of the economy, the Chancellor has been telling us how important it is to provide a good business tax regime and why he has cut corporation tax? If that is the right way to promote investment in the economy, why is one sector singled out and told that it is to be boosted by being taxed harder than any other? The logic is contradictory, to say the least.

Robert Smith: That is a worrying sign for other businesses, and there is a knock-on effect for other business decisions. If this is the way that the Government treat the successful oil industry, how will they treat the others?

Robert Key: Is the hon. Gentleman aware that yesterday, a Standing Committee on statutory instruments passed the Offshore Chemicals Regulations 2002, which will add a burden of a further £1 million a year for the oil industry simply to apply for permits under the new regulations?

Robert Smith: I thank the hon. Gentleman for bringing that to the attention of the House. It is not only such burdens of regulation, but the relationship with the regulator, the access charges into the network and other charges that make the UK an expensive place to operate. There is also the worry about gas balance, and so on. It is a dangerous time for the Treasury to change the tax system, when other regulatory impacts put additional concerns on to the industry.
	It is important to emphasise the long-term nature of the industry. Yes, in one year there may be a higher rate of return, but in another year it may make a loss. The price of oil goes up and down. In the early 1980s, the price of oil was about $70 a barrel at present-day values. It is way down on that now, in real terms, and it could go down again. It is up to the Government in Saudi Arabia what price the world pays for oil.

Tom Harris: The hon. Gentleman is surely off on a tangent. The tax is profit-related, so if profits go down, the tax goes down. That answers exactly the point that he is making.

Robert Smith: But the tax still takes more money out than before it was put on, so it makes the UK less attractive to investors. At least there is agreement on both sides of the House that taking more money out of the industry means that that makes it less attractive.
	I am explaining to those who pick out of thin air one statistic to justify the tax, that the industry looks at the return on its investment over the lifetime of the field. The bad years are paid for by the good years. If the tax comes on by surprise in the good years, investors will not take the risk of doing anything for the bad years. That damages the long-term profitability and attractiveness of the North sea and the rate of return for future generations. It fails to get every last drop of gas and oil out of the North sea, which would maximise our security of supply, the Treasury's take in the long term, and the benefits for future generations from an asset on our own doorstep.

Ruth Kelly: I have detected scepticism in some parts of the Committee, on the Opposition Benches and the Lib Dem Benches, from the Scottish National party spokesman and even on my own side, about the change in the tax regime for North sea oil. I have also heard genuine concerns about the effect on jobs and investment in the North sea. I shall deal with those concerns head on and in some detail.
	The reform before us is a good reform. It is a principled reform. It is a reform for the long term which promotes investment in marginal fields and, in doing so, raises substantial revenue for the Exchequer—revenue that will help put the NHS back on a sustainable long-term financial footing, as a service that will remain free at the point of need. The Opposition refuse to commit themselves to our tax proposals and to a comprehensive national health service that is free at the point of use. In doing so, they are breaking a consensus that has existed for the past 50 years. I note that they are arguing that we should delay the introduction of the 10 per cent. supplementary charge on profits, but not implementation of the other important and very generous part of the package: full and immediate relief for North sea capital spending as it is incurred and the abolition of royalties, subject to consultation on timing.

Tom Harris: My hon. Friend will be aware that the Liberals tabled an amendment—it was discussed yesterday—that would have increased income tax rates from 22 per cent. to 23 per cent, but are asking today for a reduction in tax on big business. Three years ago, the Scottish National party was also calling for a 1p tax increase, but today it is calling for a cut in tax on big business. Will she comment on what that suggests about the priorities of those two parties?

Roger Gale: Order. I would prefer it if the Minister were not tempted down that road.

Ruth Kelly: Thank you, Mr. Gale. I shall not pursue the issue, but my hon. Friend makes a pertinent point: the Opposition want to cut taxes and slash investment, while we are committed to putting the needs of our people first.
	The oil and gas industry has suggested that the measures will have a damaging impact on investment. Perhaps that is not so surprising—no industry likes paying more tax—but it is clear that oil companies are generating excess profits, and ours is the only major oil-exporting economy that does not have a special regime to reflect that.

Michael Jack: Will the Economic Secretary please define what she means by excess profit?

Ruth Kelly: I am very pleased that the right hon. Gentleman brings me to the point of defining an excess profit. Since the tax changes made by the Conservative Government in 1993 and the abolition of petroleum revenue tax, the rate of return in the oil industry has risen from 10.5 per cent. to 34 per cent. last year. By comparison, other non-financial industries made an average rate of return of 11 per cent. last year. That difference is not due only to temporarily high oil prices. In fact, the North sea's rate of return was higher than that of other industries in every one of the past nine years. That was the case even in 1998, when oil prices fell sharply.
	Back in 1993, we warned of a genuine risk that the oil taxation regime would fail in its objectives if North sea production held up better than was expected or oil prices rose. Our warnings have been borne out. We have been closely monitoring the position since 1998. It is abundantly clear that the regime is not securing a fair deal for the nation from this national resource, and the changes introduced in the Bill will remedy that for the future. At the same time, we fully recognise that the UK tax regime needs to be competitive. We have listened to industry, and the package that we are introducing, including the generous 100 per cent. relief for capital expenditure, focuses on investment. Companies that invest in the North sea will receive full and immediate relief against any tax liability, while those which do not do so will rightly pay a higher share of corporation tax, together with a supplementary charge.
	In future, therefore, the Government will take a much greater share of the risk of investing in the future of the North sea. It is right that, as a consequence, the nation should also take a higher share of the profits of that investment.

Alex Salmond: Would I be right in thinking that, under the tax changes, somebody using an existing and long-standing gas infrastructure such as the FLAGS—far-north liquids and associated gas system—line to St. Fergus will be charged tax at 70 per cent. of tariff income, somebody building a new pipeline to Bacton will be taxed at 40 per cent. in corporation tax plus the additional 10 per cent., but somebody taking a gas line from the same fields to Zeebrugge and transporting through the interconnector to Bacton will be taxed at 30 per cent.? Why is the Economic Secretary trying to encourage people with regard to Zeebrugge and Bacton, but not St. Fergus?

Ruth Kelly: I shall deal in detail with our analysis of the situation in due course. The typical Government tax take as a proportion of pre-tax net present value for fields that have been developed after 1993 is currently only 35 per cent., but will rise to 40 per cent. after the changes have been made. That is much lower than in most other countries, and the UK tax regime will therefore remain highly competitive. I shall turn to the detail of our analysis in due course, as I promised. On that basis, and on that of the industry's own figures, the UK regime is more favourable than that of Canada or the Gulf of Mexico.
	The oil industry sometimes emphasises the attractiveness of other international locations for investments, and it is absolutely right that it should try to convince the Government of the merits of as low as possible a taxation regime in this country. However, in a recent article in the Financial Times, Lee Raymond, chairman and chief executive of Exxon Mobil, said:
	"I have often said that the best thing that Exxon Mobil could have done after it drilled its first well in the Gulf was to never drill another again."
	He was talking about Mexico. The tax regime is one, but only one, factor in decision making. Other important elements are political stability, proximity to markets and the Government's overall approach.
	The hon. Member for Banff and Buchan (Mr. Salmond), among others, questioned how the changes can raise significant sums from the oil industry, yet have no impact on investment and jobs. I intend to deal with that point in some detail. The changes have been carefully designed. They have two elements—the supplementary charge and the 100 per cent. investment allowance. The investment allowance means, even with the supplementary charge, that companies investing in new projects will have higher post-tax rates of return than under previous rules. In net present value terms, the benefit of the 100 per cent. allowance outweighs the additional tax for marginal projects. It is the effect on marginal projects that determines the effect on investment, and they will be encouraged by the change. Of course, the increased tax reduces the net present value of more profitable fields, as it should, but those are the fields that are likely to go ahead in any case. Overall, the impact on investment and jobs should be positive rather than, as the hon. Member for Banff and Buchan suggested, negative.

Alex Salmond: In that case, can the Economic Secretary tell us why the Secretary of State for Scotland tried to minimise the impact in the Scottish Grand Committee yesterday? Why was the effect minimal and negative yesterday, according to a Cabinet Minister, but positive, according to the Economic Secretary, today?

Ruth Kelly: I have been explaining how carefully these tax measures have been designed to promote investment in North sea oil. I want to quote some slightly more objective analysts who have considered the question. Tony Wood, the Royal Bank of Scotland's senior economist, says:
	"Although significant, these changes are unlikely to adversely affect the operating environment for companies within the UK. Our view is that there is quite a strong demand to acquire assets in the UK, so we don't think it will hit activity because it will not hit costs but be sliced off profits."

Michael Jack: Over what time frame did he make that assessment?

Ruth Kelly: I understand that he was looking at the overall long-term effect of our tax changes. If the right hon. Gentleman wants to write to me to make a specific point, I will of course consider it.
	Indeva Energy Consultants, which has been working on designing fiscal regimes for oil taxation in other jurisdictions, states that
	"the UK fiscal regime remains attractive in global terms".

Bob Blizzard: My hon. Friend has covered the supplementary charge and the 100 per cent. capital allowances. On royalty, can I press her to give a commitment to undertake the consultation on royalty abolition straight away and over a short period, so that it is possible to secure the abolition of royalty during the passage of the Bill rather than having to wait for a future Finance Bill?

Ruth Kelly: I understand my hon. Friend's anxiety for prompt consultation, but I do not want to speculate about its results or the timing of the royalty's abolition. However, we are committed to prompt progress, and the Department of Trade and Industry has said that it will effect that. We want to get the changes and their timing right.
	I want to consider the analysis that the Treasury has undertaken in making the tax changes. I want to put on record the analysis and the criteria that we have used in designing them. A full analysis was made of reform's effect on investment. We examined the impact on all investment, exploration and appraisal, development projects that had already commenced, probable and possible developments on new fields that had already been discovered, and incremental developments of fields already in production. Let me consider each in turn.
	On exploration and appraisal, companies are known to use the expected monetary value approach to exploration investment decisions. That is sound economic rationale. Using that method, we found that the rate of return on future exploration is likely to be improved by the tax change. That is because, in most cases, saving exploration and appraisal costs that arise from the higher rate of relief outweighs the loss of the expected development net present value from subsequent finds, thanks to the new 100 per cent. relief.
	Our research on development projects that have already commenced, with the costs already sunk, suggests that it is unlikely that any project will become uneconomic, and we do not expect any loss of investment.

Bob Blizzard: I am pleased that the Treasury has carried out some analysis based on expected monetary values. Will my hon. Friend please publish it and place it in the Library?

Ruth Kelly: I thought that I would place on the record our exact conduct of the analysis and the criteria that we used. I hope that my hon. Friend will be satisfied by what I am about to say.

Michael Jack: Will the Economic Secretary give way?

Ruth Kelly: I must make some progress on setting out the analysis. If, at the end of my comments, the right hon. Gentleman still wishes to make a point, I shall take his intervention.
	We conducted an analytical exercise on new fields, using empirical data. We used companies' projections of output capital and operating expenditure. Of course, we use the data on real fields. We examined 108 new fields that will potentially commence development in the next five years. That information is commercially sensitive and we cannot put it in the public domain. Clearly, we have the advantage of being able to use the data.
	We applied all the various investment criteria that companies use to establish whether projects will proceed. We used the long-term oil and gas prices that companies typically use: $17 to $20 per barrel of oil. We did not use recent oil prices. We also worked on the basis of 18p per therm for gas. We applied a safety check to ascertain that a lower hurdle rate of return would be achieved if oil prices were low.
	We cross-checked that the quantity of new field investment that the industry planned according to its estimates was consistent with the required thresholds that we used. For projects to proceed, all the test thresholds had to be met. As an additional safeguard, we modelled more and less stringent tests and took the average effect on investment that the different assumptions produced.
	We also considered incremental investment. It is generally expected that the spread of internal rate of return and net present value of incremental projects are broadly similar to those of new fields. We were therefore able to interpolate from the new field data.
	The work concluded that the overall impact on North sea investment and jobs was likely to be positive. I hope that hon. Members will accept that we undertook the work thoroughly and responsibly, using real data and projects to which commentators have not been privy.

Michael Jack: rose—

Alex Salmond: rose—

Ruth Kelly: I must make progress; I have been very generous. However, I promised the right hon. Member for Fylde (Mr. Jack) that I would give way to him.

Michael Jack: I thank the Economic Secretary for her kindness. Given all her work, which is genuinely interesting and impressive, why cannot the data and the methodology be put into the public domain on an anonymised basis? She prayed in aid her summary of it, and we should therefore be able to examine the calculations on an anonymised basis.

Ruth Kelly: I have been advised that that is not possible for reasons of commercial confidentiality. I have set out in the fullest possible way the analysis that we have conducted.
	I want to turn to some of the other points raised in today's debate.

Alex Salmond: rose—

Ruth Kelly: Given the time, I must make some progress. I have been very generous in giving way so far.
	The hon. Member for Arundel and South Downs (Mr. Flight) asked why the measure applied to gas as well as to oil. Gas, like oil, is a scarce national resource that often generates high rates of return. The special tax regime applied to the North sea has always applied to gas production as well as to oil production, and there is no reason to change that.
	Hon. Members have pointed out that gas prices currently appear to be low. I would respond that there is a wide variety of gas prices, depending on when and where the gas is delivered. The profits to be made from gas will obviously depend on the average price over the year. The current market price for a year's supply of gas is 20p per therm. In April 1999, it was 11p per therm, so I do not accept the suggestion that gas prices are particularly low at the moment.
	The hon. Member for Arundel and South Downs argued that the changes amounted, in some respects, to retrospective taxation. I do not accept that. No profits arising before 17 April will be subject to the supplementary charge. Any change to business or personal tax rules will inevitably affect people who have made decisions prior to the change, but that does not amount to retrospection. The Government are making these changes because they are right, and we cannot be diverted from doing what is right just because some companies may be adversely affected.
	My hon. Friend the Member for Waveney (Mr. Blizzard) said, in his interesting and thoughtful contribution, that the Government had compared tax takes with those of other countries without taking it into account that field sizes are much smaller and costs much higher in the United Kingdom than elsewhere. I would like to put on record our response to that point. To take an example, let us suppose that, instead of comparing similar-sized fields, we consider a smaller field—say, a 25 million-barrel oilfield in the United Kingdom, with unit costs 50 per cent. higher than average. In such a field, the tax take will not rise under the proposed changes; it will fall from 45 per cent. to 40 per cent. in present value terms. Helping projects in a weaker economic position such as those—there are many in the United Kingdom—is the precise point of the package that we are putting forward today.
	My hon. Friend the Member for Aberdeen, Central (Mr. Doran) raised the concern that had been pointed out to him about whether the supplementary charge would be creditable under double taxation treaties. We believe that the supplementary charge is substantially similar to corporation tax, and that it should be creditable under most double taxation agreements. Ultimately, of course, that will be a matter for our treaty partners. I would be interested to hear from the industry if this matter is of particular concern. We shall certainly be able to take the issue up with the United States authorities if that proves necessary.
	The hon. Member for Arundel and South Downs asked whether losses could be offset. The supplementary charge applies from 17 April 2002, and it is based on adjusted ring-fence profits. If a company's adjusted ring-fence profits are negative in future years—in other words, if it makes a loss—it will be able to carry that loss forward for that year and subsequent years. Companies will also be able to carry forward losses arising from previous years, except losses arising from financing costs. We shall come to that matter in the course of our discussions on further amendments.
	The right hon. Member for Fylde made a point about new North sea entrants having no corporation tax against which to use the new allowance. The first-year allowances are a tax relief, and a feature of any relief is that it can be used to offset tax only when there is a taxable capacity. These allowances, as I have just explained, will not be lost if a company has insufficient taxable profit to use the allowance against; they can be carried forward and used against taxable profits made in later years.
	The right hon. Gentleman also mentioned the impact on companies' balance sheets and the impact of the deferred tax reserve. I accept that there will be some impact on companies' balance sheets, but because these are one-off provisions, they should be interpreted as such by the stock market. In fact, we have seen only a modest effect on share prices, and I would suggest that this is not going to be a substantial problem.
	The hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith), among others, questioned whether the Government had considered future energy supply issues. Of course, our objective is to ensure that the full economic potential of the North sea is derived for the nation. The investment incentives provided by the new first-year allowance will ensure that. These measures are also particularly helpful in promoting the continuing life of mature fields.
	For example, a typical investment project to extend production in an older field that is paying petroleum revenue tax yielding a pre-tax rate of return of 20 per cent. has until now offered the investor a rate of only about 15 per cent. after tax. In future, thanks to the first-year tax allowance, the rate of return will be 20 per cent. after tax, the same as the pre-tax rate. If in future we decide to abolish royalty, that will have an additional impact on investment. We are committed to abolition, subject to consultation on the timing.
	Members on both sides of the Committee mentioned the important and constructive work done by PILOT with the industry. That work is indeed very helpful. Much of it has focused on encouraging investment, and it has informed our approach to tax reform. We share the industry's desire to maximise the economic benefit to the United Kingdom of its oil and gas reserves, and provide incentives for the industry. We have learned from the work with PILOT that none of the tax changes will undermine that co-operation. We look forward to the furthering of PILOT's valuable Government-industry initiatives.
	Members on both sides of the Committee also mentioned consultation. In 1998, during the last Parliament, the Government proposed to consult on the choice between two options for tax reform—the extension of petroleum revenue tax and a supplementary charge on profits. That made sense at the time, but in due course, in an environment of low oil prices, it no longer made sense to proceed with any change. Four years on, the proposal to reintroduce PRT is unrealistic. It would require companies to rebuild records on income and expenditure in all fields that had come onstream since 1993. Given that oil companies may have changed hands, that would be administratively very difficult—a bureaucratic nightmare.
	As far as I know, no one in the industry has called for the reintroduction of PRT. We have opted for a simple, streamlined tax reform that promotes investment over the long term. We will of course continue to work with and listen to the industry as we implement the changes, and, as I have said, we are consulting on the timing of the abolition of royalty.
	No speaker so far has given a single example of an economic project that would be prevented from proceeding as a result of these changes. As I explained, that is because the upfront costs of projects to investors will be significantly reduced by the new tax relief, and marginal projects will be encouraged.
	The new tax regime is right. It is firmly based on sound analysis. There is no point in delaying its introduction. I urge the Committee to reject the amendments.

Howard Flight: I shall not detain the Committee for long. We have had an excellent debate, in which Members on both sides—particularly those who know the industry—have presented their arguments extremely well.
	I congratulate the Economic Secretary on responding to a number of points in some detail, although I do not think she fully answered the basic question about why the tax measures proposed in their net form would, allegedly, encourage investment rather than—as the industry claims—reducing it. It is ridiculous to argue that an extra £6 billion in tax will be good for, and welcomed by, an industry, and will enable it to increase its activities.
	As for the fundamental issue of consultation, if the Government have such a good case to sell—unfortunately the Economic Secretary could not make it available to Members, for various reasons—there is all the more justification for our amendment. The Government should sit down with the industry, and persuade it that what is being done is reasonable and will not damage it.
	The point about PILOT sums it up. I think the Economic Secretary deliberately misunderstood what I said. People were enticed by PILOT into committing themselves to new fields—twice as many as in the previous year—on the understanding that the tax regime would remain stable. However, no sooner have they committed than a third increase in tax is imposed on the fruits of those investments. Of course they feel that the provision is retroactive; they feel that the Government have deliberately set them up. It is not surprising, therefore, that a strong feeling of ill will exists.
	The amendment would ensure the future of the industry and we want to press it to a vote. If the Government's case is correct, it is right that the industry should be able to consult properly.

Question put, That the amendment be made:—
	The Committee divided: Ayes 163, Noes 281.

Question accordingly negatived.

Howard Flight: The next amendment due for discussion, Mr. Gale, was to be amendment No. 3. However, given the amount of time that the Committee spent on the previous group of amendments, we do not want to put amendment No. 3 to the vote. It was designed as an alternative to the previous amendment, and would have halved the rate of the tax. It would have provided an opportunity to establish the correctness of the Opposition's argument that there is a risk to investment, especially given the outlook for oil prices and the nature of the UK industry. As we will have a chance to vote on other amendments, and on whether the clause should stand part of the Bill, I shall not move amendment No. 3.

Malcolm Bruce: I beg to move amendment No. 29, in page 64, line 2, leave out from "which" to "would" in line 3.

The Temporary Chairman: With this, it will be convenient to discuss amendment No. 28, in page 64, line 2, leave out from beginning to end of line 17 on page 65.

Malcolm Bruce: The problem dealt with by the amendment was alluded to earlier in the debate.
	The first matter on which we wish to probe the Economic Secretary is why the Government argue that the costs of financing developments should be excluded from the calculation. I am sure that the Minister is aware that the presumption that all oilfield developments are financed as equity is a long way from the truth. Many companies, especially smaller ones, finance their development by borrowing. That is a legitimate part of the cost of developing the fields, and if it is not allowed it will substantially alter the profile, the rate of return and even the viability of the developments. The Economic Secretary must explain why that should be the case.
	Let me anticipate a possible answer. The hon. Lady may say that, using such pieces of information, companies could present a case that amounts to a spurious tax relief. The counter argument is that there is also a real cost. The relationship between the oil and gas industry and the Government is quite intimate. Despite the problems that have been alluded to in recent debates and the breakdown of confidence and trust, the reality is that relatively small companies deal daily with the Treasury and the Department of Trade and Industry. It seems perfectly within the ability and capacity of the Government and the industry to work out a formula that achieves a fair and proper balance. Indeed, the Economic Secretary has been keen to address the question of fairness.
	When the corporation tax rate is running at 30 per cent., financing charges are deductible—but not, apparently, against the extra 10 per cent. of a windfall tax. It has been put to us that in some cases the debt finance could amount to 70 per cent. of the project cost. Clearly, it is a significant factor, and simply to discount it could lead to considerable difficulties and destroy the viability of some projects.
	It has been suggested that some of the smaller companies are having difficulties highlighting the problem that the Government's proposals present, because if they make a public indication of the difficulties imposed it could have an adverse effect on their share price or, if they are not floated, on the financing that they wish to secure. Therefore, to some extent, they feel unable to speak out as forcefully as they might wish.
	The point about United States companies has already been made. If this is not allowable, they could effectively be caught twice as it may not be a legitimate charge or tax. However, the Economic Secretary has indicated that the Government intend to address that issue.
	The reality is that for the very companies and projects that the Government claim they wish to encourage, the costs are real and are financed from external sources. I suggest that if the Government feel uncomfortable about opening up total allowance, they could agree on a notional allowance. They could accept that borrowing and debt finance are legitimate and negotiate a deal on which both parties could agree. The Minister will acknowledge that that is not abnormal practice; it has been done in many other sectors.
	I hope that the Minister will accept that the amendment, which may not be perfectly phrased, is designed to address what is perceived by companies in the industry as a real problem. If it is not addressed, it will seriously undermine the very objective that the Government claim to be pursuing—namely, to encourage small companies to develop some of the more innovative fields that they do not have the equity finance internally to develop but can develop in partnership with financial companies. I hope that the Economic Secretary will accept that this is a serious and real issue to which the industry needs answers.

Bob Blizzard: I want to emphasise the point made by the hon. Member for Gordon (Malcolm Bruce). The presence of small companies working in the North sea province is most important; they are the key to making the most of the mature stage of its development.
	As we know, finance charges form a major part of the exposure of small companies. My hon. Friend the Economic Secretary made it clear that much study has been devoted to examining individual fields. I hope that we can identify the companies and modify the measure to address their problems. We do not want to put off such companies; we want to attract them.
	We heard earlier that smaller, new entrant companies would not necessarily be able to benefit fully from the 100 per cent. capital allowances, as they have no tax against which to offset them. We should consider the matter seriously and try to find a way of allowing financing costs to be offset against the supplementary charge for the smaller companies, which hold the key to the future investment and success in the North sea that we all want.

Alex Salmond: Several ideas were put to the Economic Secretary earlier. She did not deal with them at the time, but the debate on these amendments will give her the opportunity to do so.
	It was argued that some relief for financing purposes would encourage development. The Economic Secretary has already heard the figures for exploration and appraisal drilling in the North sea, which are a matter of huge concern. The figures went down by more than 50 per cent. over the past five years, despite the fact that the success rate—25 per cent.—is good. That must be a substantial argument for some additional uplift for exploration and appraisal drilling. I am sure that the hon. Lady will agree that the future of the province in 10 to 20 years will depend on the exploration or appraisal drilling that is being carried out—or not—at present.
	It was also argued that there should be some additional benefit for incremental investments. Those are positive ideas to modify the impact of the tax changes.
	The hon. Lady told us that the tax changes would have a positive impact. I am sure that she wants to listen to these points, as she will soon be replying to them. She cited a mysterious analysis, which has been produced but cannot be published. In fact, it is so secret that it was not available to the Secretary of State for Scotland when she spoke yesterday about minimising the impact of the changes—she thought that they would have a negative effect.
	Why is the analysis so secret that it remains in the Treasury? Have its benefits been shared with other Ministers? If so, would not the correct way forward be to publish the analysis, hold genuine consultations and debate, and then decide what to do about the taxation regime? The Government say that they have taken that course in respect of other taxation changes, so as this matter is of such importance they should adopt it in this case.
	If the Economic Secretary is correct and the tax changes are so positive, the Government would attract massive support for their position during that debate. However, if we are correct in suspecting that £1 billion a year cannot be taken from the North sea industry to any beneficial effect, the hon. Lady will have a great deal to worry about in that debate.
	I have a question for the hon. Lady about the financing costs. Am I right to believe that, under current taxation proposals, if an oil company chooses to transport gas through the FLAGS system to St. Fergus, it will be taxed at 70 per cent.; if it goes to Bacton, it will be taxed at 40 per cent.; and if it goes to Zeebrugge—which, as she knows, is in the Netherlands—it will be taxed at 30 per cent? Is that the current situation? If so, can she justify it? How will it benefit the Scottish economy, the English economy and the economy of the Netherlands?
	Are the Government trying to encourage companies to bypass Scotland—even to bypass Bacton—to go to Zeebrugge and then transport their gas through the interconnector? It is a simple point; the hon. Lady can either confirm or refute it. If she confirms it, no doubt she will be able to give us an explanation.
	We have had an interesting debate on a matter of enormous importance to many of our constituents. The Economic Secretary will forgive me when I say that I was not persuaded by a secret analysis that cannot be published or discussed, but that somehow shows that the industry will benefit from taking so much money out of it.
	If it is true that the tax changes will have a positive impact, why were they withdrawn when the oil price was low? Surely if the changes were positive, the Economic Secretary should have introduced them when the oil price was low in order to boost the industry. The oil industry knows and workers in the industry know that she is engaged in levitation economics. It is simply impossible to take out so much without people suffering as a result, and we should have a debate and consultation to find out how many jobs will be lost.

Robert Smith: The hon. Member for Banff and Buchan (Mr. Salmond) makes the valid point that the two sides of A4 placed in the Library do not provide hon. Members with a substantial reassurance of the foundation of the Treasury's analysis. There must be some greater analysis that can be placed in the Library without breaching confidentiality.
	The analysis presented in the table that we have betrays an assumption based on equity financing. Has any analysis been conducted based on debt financing? We understand that that there can be up to 70 per cent. debt financing, especially for smaller companies.
	On ensuring that the right debts are attributed to the right income so that the Treasury gets its share, the briefing that we have all received from the industry suggests that the Oil Taxation Office already has sufficient powers to audit allowable charges and various methods to protect against excessive debt, which are outlined in the OTO ring-fence corporation tax manual. Consequently, the industry does not believe that there is any reason to disallow this measure.
	A point was made earlier about Kerr McGee, which has also written to me, and I have dealt with the company before. The argument seems to be that, because of the specific measure that we seek to delete under the amendment, the United States authorities do not recognise this tax as being allowable for double taxation relief. Although the Economic Secretary will approach the Americans, I am sure that the United States will not necessarily change its tax regime, so it might be more sensible to try to accommodate financing costs in handling and assessing this tax. I understand that France may similarly treat the tax as not being allowable for double taxation relief because of the financing charges.
	I should like the Economic Secretary to address those points, especially the concern that we all feel about the need for far greater openness and clarity so that the Treasury's analysis is put in the public domain to reassure our constituents, because we are concerned about their jobs and future investment.

Ruth Kelly: I do not think that, in response to some of these debates, I could have been more open and transparent than I have been this evening. I should like to concentrate on the amendments on financing costs, which we have not had an opportunity to discuss so far tonight, rather than to reopen previous debates, which I covered in substantial detail earlier this evening. However, perhaps I should start by answering the point about pipelines made by the hon. Member for Banff and Buchan (Mr. Salmond), who speaks for the Scottish National party.
	I freely admit that different pipelines have different tax treatments. That is due to changes made by the previous Conservative Government. I admit that the FLAGS pipeline is taxed at a higher rate, but full tax relief is available on the cost of its construction—also at a higher rate. The comparisons are not simple; these are complicated reforms.

Alex Salmond: rose—

Robert Smith: rose—

Ruth Kelly: I do not want to reopen previous debates; I have clearly made the case for the changes before us tonight. I should like to turn to the amendment on financing costs and consider whether such costs should be taken into account in calculating the profits base for the supplementary charge. If we were to take account of those costs, it would allow companies to manipulate their borrowing to minimise the effect of the charge. [Interruption.] There is some scepticism among those on the Liberal Democrat Front Bench, but I put it to the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) and other hon. Members that oil companies have access to sophisticated tax planning advice.
	One need not be a tax planner to realise that financing costs have to be disallowed if the supplementary charge is to work effectively; otherwise it would clearly be in companies' interests to arrange their affairs so that all their North sea activities were funded by borrowing, for which they could claim relief against a 40 per cent. tax rate, while their other activities—taxed at 30 per cent.—were funded by capital. I shall expand on those comments as I progress.
	If we allowed financing costs to reduce the profits subject to the supplementary charge we would have to increase the rate of the charge to ensure that the nation received a fair share of the economic rent derived from the North sea. I cannot say what that increased rate might be; it would depend on how far individual companies were able or chose to arrange their affairs to reduce the impact of a 10 per cent. rate. Clearly, however, raising the rate would penalise those companies without the scope to manipulate their borrowings. A complete disallowance of financing costs for the supplementary charge is much fairer.
	I understand the points made by the hon. Member for Gordon (Malcolm Bruce), my hon. Friend the Member for Waveney (Mr. Blizzard) and the hon. Member for Banff and Buchan that debt relief for financing costs might be more of a burden for some smaller companies. An effective measure is needed, however, to prevent erosion of the tax base. It would not be feasible for us to try to differentiate one type of company from another. We are trying to simplify the oil taxation regime.

Robert Smith: rose—

Ruth Kelly: I shall continue my argument for a moment.
	Companies will still be able to offset 75 per cent. of their North sea borrowing against tax, and with the 100 per cent. tax relief for capital expenditure, the package should still encourage investment by small and large companies.
	Some people who are concerned about this issue have suggested alternatives. One is to try to apportion all the financing costs of a group between North sea and non-North sea activities rather than deny costs altogether. There would not be a case, however, to apportion those costs purely for the supplementary charge and not for corporation tax generally. It has not been suggested to me or my colleagues that companies would want such a rule to apportion financing costs.

Howard Flight: One aspect that I raised was that, in order for the supplementary charge, should it go ahead, to count for double taxation relief, it would be necessary to allow financing costs. It would be a disaster if it were not allowable, particularly for United States companies. As a practical matter, therefore, the Government may be forced to use a regime that permits financing costs to be deductible in some way.

Ruth Kelly: I said earlier in the debate that we listened to the industry and whether it had concerns about the double taxation treaty and the interpretation of it by our treaty partners. We remain committed to listening to those concerns. If there are real issues, we shall take them up with the United States authorities, or, if more general concerns are expressed, we shall deal with it in other ways. I would not want to rule that out altogether. We have opted, however, for simplicity and for a measure that will avoid tax evasion. What we have done is fair and simple. I have not yet heard a real call from the industry for an alternative. If I do, however, I shall listen to it. We must introduce an effective and simple regime for the future, which will generate investment, have a positive impact on jobs and raise a fair share of revenue for the future.

Robert Smith: Will the Economic Secretary make sure that her colleagues who are no longer in the Chamber, but who were earlier praying in aid the fact that the changes would benefit smaller companies the most, read what she has said? As financing charges are being excluded, the smaller companies, which rely on borrowing, will suffer more under this part of the clause.

Ruth Kelly: I do not accept that. Although I accept that small companies may have a particular issue with financing costs, I do not accept that the Budget is in any way less good for small companies than it is for larger companies. The hon. Gentleman must also take into account all the other changes for small companies that we have introduced in the Budget, including the reduction in the corporation tax rate.
	Overall, small companies will not be particularly disadvantaged by the change. However, I have been open with the Committee and said that there may be issues involved. If the industry has concerns, we will listen to them. We are committed to working with the industry to get the supplementary charge recognised under double taxation treaties. If there are concerns, we will act on them if possible.

Alex Salmond: I think that the Economic Secretary has now conceded the point on differential taxation for pipelines. She may blame the Tories for the outrageous 70 per cent. tax on FLAGS at St. Fergus, but the differential between Bacton and Zeebrugge is created by this Budget. Now that it has been drawn to her attention, will she, in the interests of fairness and creating a level playing field, undertake to do something about not just the Bacton-Zeebrugge differential but the tax on tariff income going through the FLAGS line at St. Fergus?

Ruth Kelly: I have dealt in detail with the specific point that the hon. Gentleman raises. If he wishes to raise other issues with me, I can deal with them in writing.
	I think that I have made the point fairly. We need to raise a fair share of revenue from North sea oil and introduce a system of taxation that is simple, transparent and will promote investment and jobs over the longer term.

Malcolm Bruce: I am grateful that the Economic Secretary has acknowledged that there is a problem that she is willing to address. However, I am disappointed by the way in which she dismisses a real and serious concern that will materially affect small companies.
	I make no apology for using the UKOOA brief in this context, but we are told that 70 per cent. of a project's development funding could come from debt finance. To make no allowance for that would clearly have a devastating effect on some projects. Indeed, it would make them completely non-viable or, at least, non-viable for those companies that have to finance the projects in that way. In those circumstances, it is strange that the Economic Secretary regards her proposals as fair. They are fair for the large companies that can finance the projects from equity finance.
	I accept the Economic Secretary's remarks that there is a worry that companies will change their method of financing to qualify for the tax relief. However, if the Oil Taxation Office has the power—on the basis of the detailed analysis that she gave in the previous debate, the Treasury claims to understand how oilfield financing operates—it should be possible to reach a conclusion that would allow at least some of the costs to be calculated.
	Although I welcome the fact that the Economic Secretary has acknowledged that there might be a problem and that, if the industry can persuade her, the Government might adjust the scheme, the fact that she is not minded to do so means that the amendment is necessary. I ask the Committee to support it.

Question put, That the amendment be made:—
	The Committee divided: Ayes 160, Noes 276.

Question accordingly negatived.
	Amendment proposed: No. 33, page 65, line 17, at end add—
	'(11) This section shall come into force on such day as the Treasury may by order made by statutory instrument appoint, but no such order shall be made until an economic impact assessment has been made of the effect of the changes on activity and employment in the oil industry in the North Sea.'.—[Mr. Salmond.]
	Question put, That the amendment be made:—
	The Committee divided: Ayes 155, Noes 272.

Question accordingly negatived.
	The Temporary Chairman, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of debate on the amendments proposed thereto, forthwith put the Question, pursuant to Standing Order No. 68, That the clause stand part of the Bill:—
	The Committee divided: Ayes 265, Noes 154.

Question accordingly agreed to.
	Clause 90 ordered to stand part of the Bill.
	Clauses 91 and 92 ordered to stand part of the Bill.
	Clause 131 ordered to stand part of the Bill.

Schedule 38
	 — 
	Recovery of taxes etc due in other member States

Howard Flight: I beg to move amendment No. 23, in page 475, line 11, after "his", insert "alleged".

Michael Lord: With this it will be convenient to discuss the following amendments: No. 35, in page 475, line 27, at end insert—
	'6A Nothing in this Schedule shall contravene the presumptions in law against retrospection whether statutory or otherwise.'.
	No. 24, in page 475, line 28, leave out paragraph 6.

Howard Flight: The notes accompanying the Bill provide an innocuous description of clause 131 and schedule 38, saying that they
	"improve existing arrangements for cross-border assistance between EU Member States in recovering indirect taxes, duties and penalties, and extend recovery procedures to cover direct taxes (income tax, corporation tax, capital gains tax"
	and certain insurance premium taxes.
	What the clause and schedule actually do is implement Council Directive 2001/44/EC, and provide a mechanism for its operation. They provide an automatic enforcement in the United Kingdom of any tax claimed in another EU member state against a UK party, without that UK party's being able to dispute the claim in the United Kingdom. The goods can be seized—it has to go through the standard channel—but the company or individual cannot question the amount or the circumstances of the claim.
	Schedule 38 provides for the proceedings by the relevant UK authority to enforce the foreign claim by way of legal proceedings, through distress or otherwise, as for a corresponding UK claim. Unlike a claim by Customs and Excise or the Inland Revenue, however, such a claim will not involve any ability to question the claim: that is ruled out by paragraph 6(b). Similarly, paragraph 4(1) refers to "his liability", not to a claimed or alleged liability. An assumption of guilt is being introduced into the system of enforcement in the UK.
	We consider that unacceptable. For one thing, there are major differences between the UK's tax law and that of other EU states, and between the tax laws of other EU states. Britain has what I would call the Magna Carta tradition. We may complain about the length of Finance Bills, but the law in the UK and the United States goes to great lengths to distinguish what is within the law and what is without, what is legal and what is illegal, what is avoidance and what is evasion.
	In most EU states, there is no difference between those pairs of concepts. In other words, tax law is not clear. It is often ultimately political, and can be extremely arbitrary. For example, if the tax authority of another EU country—Greece, let us say—produced a trumped-up tax charge against a British company or citizen because it, or he, had a business or a property there, it would simply have to put the claim through its system, which does not involve the same abilities to dispute as ours, and then present it to the British tax authorities, saying, "Go get that money." The British company or citizen would be banned from disputing the claim in the British courts or with the commissioners for taxes. As I have said, an assumption of guilt is written into the Bill. That is why amendment No. 23 would insert the word "alleged" before the word "liability". Amendment No. 24 would remove paragraph 6—the key paragraph—which prevents the UK party from challenging the otherwise automatic enforcement of the tax claim by the UK authorities.
	Amendment No. 35 deals with the fact that the UK has a six-year back period for revenue claims, a three-year back period for customs claims, and a 20-year back period for revenue claims involving fraud. The provisions in schedule 38 include no such parallel time limits, yet circumstances could arise in which a claim was automatically enforced in the UK that related to an alleged tax claim from, say, 30 years ago. Under the provisions, the date will depend on the rules of the other member state. Of course, application for UK enforcement cannot not be made until the Bill is enacted. Once enacted, the proceedings in the other member state must apply within five years of coming to the UK to enforce the claim. That is what the five-year limit means. However, such proceedings could relate to a time period and a claim that go back substantially further than that, depending on the prevailing rules and customs of the country in question.
	British citizens enjoy the law and rules relating to back claims as they obtain in this country, but under the Bill back claims arising in an EU member state could be enforced, and property seized, without any right to dispute. Moreover, such claims could relate to a period some 30 years ago. That seems somewhat objectionable. That rather contravenes the principles of UK statute and case law, concerning the extent to which claims can be made and enforced retrospectively.
	I do not want to single out poor old Greece yet again, but the extraordinary recent plane spotters case highlights the fact that the legal arrangements in some other states are rather more arbitrary and political than in this country. In mentioning Greece, I am mindful of the famous Don Pacifico incident. Lord Palmerston would turn in his grave if he realised what the Bill proposes to write into our laws.
	What is hidden away in schedule 38 is objectionable and authoritarian, and contrary to the traditions of British civil liberty. It is wholly wrong to allow a tax claim by a foreign country to be enforced in Britain without giving the person claimed against the legal ability to dispute. Moreover, the potential exists to go back much further than in the case of a UK claim. In terms of the EU directive that the schedule will incorporate in law, I should point out to the Economic Secretary that the schedule in part involves an element of gold plating. I also understand that the parliamentary draftsmen had believed that the word "claim", and the five-year arrangements, referred to the year in which the UK claim was alleged to have been made, effectively limiting retrospection to five years, but that is not reflected in the directive. The directive is also fairly woolly and unclear, but it has been put into effect in the schedule in the way that I have described.
	Given the time of day, we do not seek to divide the Committee on all three amendments, but I give notice that we shall seek to do so on amendment No. 24.

Edward Davey: The thrust of the schedule is probably right, in the sense that the mutual assistance recovery directive is important for the British taxpayer. We need to ensure that citizens from other EU member states who owe the UK Exchequer money are not able to avoid that debt to the British people by moving to other EU member states. Indeed, such a debt might have been accrued by a UK citizen, but we do not want people to be able to avoid their due tax liabilities to the UK Exchequer by moving to other member states of the EU. To that extent, the directive is correct and the legislation appropriate.
	In order for the Committee to be assured that the Exchequer will be protected, we need to know from the Minister how many other EU member states have enacted the directive. If she cannot tell us that all the other member states have enacted it, we need to know when she expects that to happen. We do not want to be the only member state to comply with the directive and our partner states to catch up with us in 10 or 15 years' time. That would mean that the legislation would give the UK Exchequer no advantage, and in fact would put it at a potential disadvantage.

John Bercow: We are hearing an extraordinarily unbalanced speech by the hon. Gentleman.

Edward Davey: I have not finished yet.

John Bercow: I hope that we will hear more and that it will be better than what we have already heard. The hon. Gentleman, as a member of the Liberal Democrat party, which professes a belief in individual rights, is preoccupying himself with the protection of the Exchequer. Is he not concerned about schedule 38(6)(b) and the denial of individual rights that it entails?

Edward Davey: The hon. Gentleman should stay in his place and let other hon. Members finish their speeches. There are two aspects to the schedule, one of which is the protection of the UK Exchequer. That is the one that I was addressing because I wished to seek assurances from the Minister that other EU member states are enacting the directive so that the UK Exchequer is protected. That is an important point. Indeed, I was surprised that the hon. Member for Arundel and South Downs (Mr. Flight) failed to make that point. We need to ensure that the UK taxpayer is protected and I am surprised that the hon. Member for Buckingham (Mr. Bercow) is so concerned that I am concerned about that. That makes the Tory attitude to financial improvements evident to everybody.

Howard Flight: rose—

Edward Davey: If the hon. Gentleman will stay in his place, I am about to come to the issue of the rights of the individual. He is right to say that schedule 38(6)(b) is a matter for concern. We want to know what protection UK citizens will have if the tax authority of another EU member state makes a false claim. The directive, and the way in which it is being put into our law, does not give adequate protection. I hope that the Minister will make it clear to the Committee that she has been reassured that it will not be possible for a UK citizen to be pursued by another EU member state's tax authority on no grounds. We need to hear from the Minister what rights of appeal UK citizens would have. For example, if they believed that the highest court of another EU member state had not given justice, would they be able to go to the European Court of Justice to override the decision?
	I hope that the Minister can reassure the House that important individual rights are not being overridden.

Ruth Kelly: I am quite surprised to hear the hon. Member for Arundel and South Downs (Mr. Flight) calling this provision objectionable and authoritarian. I completely agree with the hon. Member for Kingston and Surbiton (Mr. Davey) that people who have failed to pay tax that is legally due should not be able to escape payment simply by moving to another member state. It would not be right to provide a tax amnesty to people when the means to collect tax that is legally due already exists.
	The system will build on the existing inter-state debt recovery service that has operated successfully for indirect tax for many years. A joint Customs and Excise and Inland Revenue mutual assistance unit is being set up with staff from both departments working together to co-ordinate and send requests to other member states, and to deal with requests from other member states that relate to UK taxpayers.
	The hon. Member for Arundel and South Downs has unfortunately misinterpreted some aspects of the provision. His amendment suggests that the liability on which recovery is sought in UK proceedings should be an alleged liability. That is not the case. Recovery in the UK depends on the existence of liability in the member state making the request. Indeed, the applicant authority may not normally request recovery unless the claim, and the instrument permitting enforcement, are not contested in the member state in which it is situated.
	It has been suggested that the provision involves some presumption of guilt. I dispute that charge. As soon as the UK is informed of a contested claim, either by the applicant authority or the interested party, the measure allows for the enforcement procedure to be suspended, unless the applicant authority requests that it continue, and the law, regulations and administrative practice in the UK allow for such action.

Chris Grayling: Will the Minister explain what the word "normally" means in that context?

Ruth Kelly: I think that most hon. Members understand what the word "normally" means. I do not think that this is the place to try to define such words.
	I point out that provision to continue such actions exists already in UK law. For example, the requirement to pay Customs duty, even where an appeal against a decision of a Customs authority is pending under article 244 of the Customs code.
	A key element of the measures is the provision that, once an instrument permitting enforcement of a claim has been received by the member state requested to pursue that claim, it must be recognised and acted on. That is the only practical way to handle such claims. The alternative would require the UK to review the procedures of other member states to ensure that their tax laws have been correctly followed in respect of each and every request for recovery.
	The taxpayer's right to contest liability exists in the domestic legislation of each member state. That legislation must apply to each debt notified under the provisions. That avoids foreign courts having to familiarise themselves with the domestic tax legislation of each other member state. It also prevents the taxpayer from being able to delay recovery unduly through obstructive legal action.
	Where a taxpayer can demonstrate that proceedings appealing against liability have been, or are about to be, instituted in another member state where the debt has been established, the member state attempting recovery is required to suspend its action, pending the outcome of the appeal.
	It is worth pointing out to the Committee again that these provisions mirror provisions existing for indirect taxes since 1977. To date, those rules have caused no problems.
	It has been suggested that it might be simpler if UK citizens were able to defend themselves in English in UK courts, but that would open up a new set of problems. We strongly support the principle of national competence in tax matters. The taxpayer's right to contest a liability will continue to exist, as I have said, within each member state's domestic legislation. To allow taxpayers to challenge the appeal system of other member states through their own national courts would be to subvert national competence for tax matters.

John Bercow: I am extremely grateful to the Minister for giving way; she will recognise that these important matters must be debated thoroughly. Subsections (4) and (5) of paragraph 3 of the schedule and subsection (1) of paragraph 4 refer to regulations. Can the hon. Lady tell the Committee whether those regulations will be subject to the negative or the affirmative procedure?

Ruth Kelly: I will write to the hon. Gentleman with those details.
	I confirm that if appeals against the application of the directive are received, as the hon. Member for Kingston and Surbiton has requested, there is an appeal mechanism through the European Court of Justice. I hope that the hon. Gentleman will be satisfied on that matter. I will write to him about the number of states that have already implemented the directive; I am sure that he will understand if I do not have that information to hand.
	As I understand it, the implementation of the directive imposes no new liabilities on the taxpayer. It will not change the rights of the taxpayer or impose any tax liability that did not previously exist. Instead, it introduces procedures for recovering debts where the taxpayer has assets in another member state and allows arrangements for co-operation in collecting indirect taxes such as excise duties and VAT that have existed for many years to be extended to direct taxes as well. The only people who need worry about this measure are those who fail to pay the tax that they owe. I am sure that Members will agree that taxpayers should not be able to escape paying what they owe simply by moving to another member state. I urge the Committee to reject the amendment.

Howard Flight: There is a huge difference between this matter and excise and VAT, which are administered on a fairly common basis throughout the EU. They are not personal taxes and not part of the EU territories, where much taxation can be arbitrary. The clause and schedule are doing something new and different; they are following the same path but addressing tax areas that in the EU can be extremely arbitrary.
	I understand the practical point that it would be a lot of hassle to permit Greek or Spanish tax law, to the extent that it exists, to be disputed in an English court, but not to do so still seems authoritarian to me. A claim could be submitted against a British company or individual in Spain which they may not even know about because the authority may not be able to advise of such proceedings in the UK. That claim could be nodded through, resulting in the sums claimed being enforced without any right of dispute or defence.

David Heath: I understand the hon. Gentleman's point. However, this is a reciprocal arrangement and were the amendment to succeed, it would mean that Greek and Spanish courts, about which he seems so concerned, would have extra-territorial jurisdiction over British taxpayers about British taxation in this country. The interpretation of a Greek or Spanish court as to whether a British taxpayer was liable to pay British tax would supersede our own territorial jurisdiction. Is the hon. Gentleman not concerned about that?

Howard Flight: Before I come to what other EU states are doing, let me make it clear that I believe that justice for British citizens is ultimately more important than the greater ease of UK tax authorities in collecting tax or instructing European authorities to seize goods on tax liabilities claimed here.
	Furthermore, although the directive has not yet come into force in more than one EU member state, I am sure that the processes will be nowhere as diligent and efficient as in this country. The mere fact that the directive may have been incorporated in the tax law of all EU member states does not ensure that a claim advised by the UK authorities would be pursued and settled with the same efficiency as it would be in this country.
	The self-interest tax-gathering point is not answered merely by asking whether the directive has been put into effect. My understanding is that the whole controversial issue of denying the right to challenge the claim is a relatively grey area in the EU directive. The UK authorities might have slightly gold-plated the requirements in the practical interests to which the Minister referred.
	The arrangements that have operated for VAT and Customs have not presented such problems because the claims are not arbitrary. However, the proposal introduces a great deal of arbitrariness in claims for income tax and claims against property. It will permit an injustice against UK citizens, which the British authorities would be obliged to implement, denying British companies or citizens the right to dispute the claim. That is utterly wrong and objectionable and we would never have considered that such a measure could have been adopted in UK law in the past.

Edward Davey: The hon. Member for Arundel and South Downs (Mr. Flight) has failed to acknowledge the fact that the measure is about reciprocal arrangements and that there could be an appeal to the European Court of Justice. The Conservatives are in danger of becoming the friends of the international tax avoider and the friends of the residents of the Costa del Crime.

Several hon. Members: rose—

The Second Deputy Chairman: Order. Does the hon. Member for Arundel and South Downs (Mr. Flight) want to press amendment No. 23 to a Division?

Howard Flight: No, Sir Michael. As I said earlier, I do not want to press the amendment—[Interruption.]

The Second Deputy Chairman: Order. Does the hon. Gentleman wish to withdraw the amendment?

Howard Flight: Yes, Sir Michael, I beg to ask leave to withdraw that amendment.
	Amendment, by leave, withdrawn.

The Second Deputy Chairman: I understand that the hon. Gentleman wants to press amendment No. 24 to a Division. Is that correct?

Howard Flight: Yes, Sir Michael.
	Amendment proposed: No. 24, in schedule 38, page 475, line 28, leave out paragraph 6.—[Mr. Flight.]

Question put, That the amendment be made:—
	The Committee divided: Ayes 85, Noes 249.

Question accordingly negatived.
	Schedule 38 agreed to.

Clause 134
	 — 
	Lorry road-user charge

Christopher Chope: I beg to move amendment No. 32, in page 106, line 35, at end insert—
	'provided that the charge shall be payable in respect of every lorry using a public road in the United Kingdom irrespective of the country in which such lorry is registered.'.

The Second Deputy Chairman: I gather that it will be for the convenience of the Committee if we discuss the following amendments together: No. 30, in page 106, line 35, at end insert—
	'(2A) The rates at which lorry road–user charge shall be payable shall be determined so that the total of road user charge, vehicle excise duty applicable to lorries and fuel duty raised from lorries shall not exceed the total of vehicle excise duty and fuel duty raised from lorries in the year 2002–03 subject to indexation up to the year of introduction.'.
	No. 31, in page 106, line 35, at end insert—
	'(2B) Lorry road user charge shall be brought into effect no later than the commencement of the financial year 2006–07.'.

Christopher Chope: I am sure that it will be for the convenience of the Committee to consider the amendments together. They have been drafted to give the Government an opportunity to expand on the rather bland statement that the Chancellor made in his Budget statement. He said:
	"Hauliers from overseas should pay their fair share towards the cost of using our roads".
	So say all of us.
	The Government rejected our proposals for a Brit disc, but they are now coming forward with their own proposals. However, clause 134 contains no reference to hauliers from overseas, to foreign lorries or to anything like that. [Interruption.] The Financial Secretary says that there is a good reason for that, and we shall have the opportunity to hear the explanation shortly. That is what amendment No. 32 is all about.
	We welcome the fact that the Government have accepted the principle of a Brit disc that was outlined in our manifesto at the last general election. We recognise that, under European law, the maximum penalty on foreign hauliers is only about £750, whereas the tax differential between a French lorry and a UK-operated lorry is about £12,000. What the Government have in mind in the clause could do much more to bridge the gap than could be done merely by the introduction of a Euro vignette.
	I hope that the Financial Secretary will also be able to address the concerns that prompted amendment No. 30. It is a reflection of the fact that the Chancellor also said in the Budget statement that there would be
	"a road user charge for lorries that is distance-based, with offsetting tax cuts for the UK haulage industry."—[Official Report, 17 April 2002; Vol. 382, c. 583-4.]
	Amendment No. 30 would put that proposal into the Bill.
	It is not just today's proceedings that have caused Conservative Members to be rather suspicious about the Government's assertions and promises and about the words of some Ministers. We have cause to reflect on what happened with the climate change levy. The Government promised an offsetting reduction in national insurance for employers but, in the Budget, they have more than totally negated that reduction by their proposals for national insurance. Similarly, on the proposals for the aggregates tax, the goalposts were moved during the consultation with the industry.
	Given that the discussion on this issue is likely to go on for some years, we want a guaranteed assurance from the Economic Secretary that the haulage industry in this country will not face additional costs. The only sure way of doing that is by putting such guarantees in the Bill.
	Amendment No. 31 deals with the issue of when the proposals will come into effect. I understand that, at the consultation meeting that was held between the haulage industry and Ministers and Treasury officials, there was talk of the measure being introduced no later than spring 2006. However, the Government have tended to fail to deliver on their targets for the completion of such legislation. Because it is vital that our road haulage industry is allowed to compete on level terms with foreign hauliers, the Bill should contain the provision that the measure will be brought in no later than spring 2006. Some would say that that is far too late, but I understand that it would be complicated to introduce.
	I hope that the Financial Secretary can explain how he will ensure that there is interoperability between foreign and British hauliers and the system that he has in mind for taxing lorries under the new regime. I also hope he will assure us that the commitment in the pre-Budget statement that there will be no net increase in taxation on truck operators in the UK will hold true. If he can explain how the proposal will be consistent with the Government's agenda for reducing and managing congestion on our roads when only one vehicle in 50 is a lorry, that would be a bonus. However, I fear that he will not want to explain why the Government think it right to have a charge for lorries that is based on their use of the road, but not to have a similar charge for motorists.
	I hope that the amendments give the Committee the opportunity to discuss those important issues. Come 2006, there will be a complete transformation of the way in which the heavy goods vehicles on our roads are taxed. That will be to the benefit of the road haulage industry, but it needs some reassurances, which I hope the Financial Secretary will provide.

Edward Davey: I want the Financial Secretary to assure us that the clause is necessary simply to allow the Government to spend the money that is needed to have a viable operational scheme for lorry road-user charges. Once that is determined, I expect the Government to include the details of tax legislation in a future Finance Bill for the House to scrutinise. If the right hon. Gentleman can give hon. Members those two reassurances, we can proceed, hopefully to the Adjournment.

Chris Grayling: I want to put a different slant on the hon. Gentleman's comments. The issue is far greater than taxation. It represents a major change for the UK. For the first time, long-distance road pricing is coming into effect alongside the various plans that exist for congestion charging. It involves significant technology changes for our road industry and has significant implications for the Government's transport strategy. I hope that the Financial Secretary can reassure us that this is a piece of enabling legislation that will not preclude a full and substantive debate about the transport industry and the place of road haulage in that. I think that the right hon. Gentleman is nodding, and I am happy to receive that assurance.
	I also hope the right hon. Gentleman can reassure us that the Government intend the measure to be revenue neutral. It must not be a way of introducing stealth taxes on the haulage industry. I am happy to give way if the Minister wants to intervene. I can see that he is keen to wind up the debate, but this is an important issue and it should not be nodded through because it is late on a Thursday evening.
	Fundamental issues are at stake. The Government's proposals have implications for rail freight and for the roads that are not encompassed by the scheme and the traffic that uses them. They come at a time when the Commission for Integrated Transport has recommended a more wide-ranging and all-encompassing scheme. I want the right hon. Gentleman to assure me that the Government will not attempt to use the legislation to railroad through a measure that is taken in isolation from the rest of their transport policy.

Paul Boateng: Clause 134 fulfils our manifesto commitment to make sure that lorry operators contribute to costs when using United Kingdom roads, regardless of their nationality. It has been widely consulted on and has been warmly welcomed by the industry. I have listened to the arguments behind the Opposition amendments, which are unconvincing and wholly misconceived. However, I shall briefly address their aims.
	It would be wrong to commit ourselves to a fixed date by which the proposals are to be implemented, as the hon. Member for Christchurch (Mr. Chope) suggested, partly for the reasons given by the Liberal Democrat spokesman. We need to be sure that we tackle complicated issues of compatibility in a way favourable to Britain's competitive interests and the interests of the haulage industry. We have therefore chosen to proceed with enabling legislation, which, in all probability, will become law in future Finance Bills. We shall bring those matters before Parliament again when they have received the technical and other consideration that they deserve and when we have developed a successful scheme; the Committee should unite on that outcome.
	We shall introduce a distance-based lorry road-user charge that will apply to lorry operators working in the UK regardless of their nationality. We have made it clear that the introduction of the new charge will not increase taxes for the UK haulage industry in recognition of the fact that it already contributes towards costs that it imposes on the UK. The Government will therefore introduce offsetting tax reductions when the new charge is introduced.
	It would be grossly irresponsible of the Committee to seek to bind the Chancellor in future Budgets, as amendment No. 30 seeks to do. We recognise the fact that the UK haulage industry already contributes towards the costs that it imposes on the UK, and will introduce offsetting tax reductions when the new charge is introduced. That is a clear and unequivocal commitment, which the road haulage industry well understands. In amendment No. 32, the Opposition have misunderstood the nature of our proposals and the complexity of the task in hand. It is not desirable to seek to commit the Government to charge every lorry using every public road. We shall ensure that the industry and key stakeholders are all involved before making a final decision. There is a strong case for charging every lorry using every public road, but a decision should be made only after consultation with the industry and stakeholders. I hope that, as a result of my assurances, the Committee, having considered the matter fully, will give the clause a fair wind.

Chris Grayling: rose—

Paul Boateng: I fear that more wind is blowing in our direction.

Chris Grayling: The Minister said that the road haulage industry welcomed the proposals. However, it has said that it is extremely anxious about the time that it may take to introduce such as scheme. In the absence of a scheme, it faces several years of continuing competitive disadvantage. Can he provide reassurance on that point?

Paul Boateng: The industry has said no such thing; it says that it is important to get the scheme right because we must ensure that it maintains its competitiveness. It welcomes the close working relationship that it has enjoyed with the Government since 1997. We would drive a coach and horses through that if we accepted any of the Opposition's amendments. I do not intend to do so, and I urge the Committee to reject the amendments, should the Opposition be foolish enough to put them to a vote.

Christopher Chope: The Financial Secretary blusters too much. His explanation implied that some foreign lorries may not be subject to the charge. Why should that happen? It could happen if there were no reciprocal arrangement and no requirements for interoperability. Some foreign lorries that do not have the necessary technological equipment on board and which could not be made subject to the charge would be able to continue to use our roads, in competition with our own hauliers, without having to pay towards the cost of those roads.
	The fact that the Minister is not prepared to accept amendment No. 32 must ring alarm bells in the British haulage industry. It will lead hauliers to believe that although the Chancellor says that hauliers from overseas should pay their fair share, the Financial Secretary is not prepared to commit himself to ensuring that all foreign lorries will be subject to such a charge. I find his response on that extremely unsatisfactory and probably rather revealing.
	The Financial Secretary says that there will be offsetting tax reductions—a suitably vague expression. It is very hard to hold somebody to account for breaking a commitment to providing offsetting tax reductions. The Whip on the Treasury Bench smiles knowingly, but such language is so much part of new Labour. The Government say something that is designed to give the impression that the road haulage industry will not suffer any additional tax as a result of the measure, but they are using words that will enable them to wriggle later and use the measure to impose those very taxes.
	When we see the Government's record, is it any surprise that we are suspicious? That is why we drafted an amendment that sets out precisely in legal terms what the Financial Secretary said to the hauliers at his meeting with them in January this year: that there would not be any additional costs for them, compared with the existing duty regime. The Financial Secretary shakes his head, but I am told that that is what was said at that meeting.
	Amendment No. 30 gives the Financial Secretary the opportunity to put on the record and in legislation the terms of his commitment. He is right—it would bind his successors. However, if a commitment is made to a major reform such as this, which necessitates the co-operation of the road haulage industry, it is important that that should be carried forward on the basis of mutual trust. What the right hon. Gentleman said in response to the arguments in support of amendment No. 30 will not have enhanced that trust and will make the haulage industry much more suspicious.
	I hope the Financial Secretary will recognise that what he said tonight will not have increased the trust between the road haulage industry and the Government. I hope that he will subsequently be able to put that right.

Paul Boateng: Everything that we have said tonight is consistent with what we have shared with the road haulage industry over many, many months. Our commitment is to its competitiveness and to ensuring that we get a scheme that delivers to the industry what it seeks—equal, fair treatment with foreign road hauliers. That was our manifesto commitment, and our proposal will deliver it practically and in a way that enhances and strengthens the competitiveness of the road haulage industry, which does a great job for the country and which has widely welcomed the proposal. With his contribution tonight, the hon. Member for Christchurch (Mr. Chope) has done nothing to enhance his own credibility and that of his party with the industry.

Christopher Chope: Why are we having a war of words about a matter that should be non-controversial? [Interruption.] My hon. Friends say that we may have to press the matter to a Division. When is the measure to be introduced? The Financial Secretary told the road haulage industry that it will be brought in by March 2006, yet he is not prepared to sign up to an amendment which states that that is the date by which it should be brought in.

Paul Boateng: The measure could be brought in in 2005—as quickly as possible—[Interruption]

The Second Deputy Chairman: Order.

Christopher Chope: If that is the Financial Secretary's commitment, there is no reason why he should not accept amendment No. 31, which states that the measure should be
	"brought into effect no later than the commencement of the financial year 2006–07."
	If he introduces the measure in the spring of 2005, so much the better.
	It is symptomatic of the arrogance of this Government that they are not prepared to agree to these modest amendments. If it is not the will of the Committee to vote on them now, hon. Members may well wish to return to them at another stage. The Financial Secretary will then have a chance to reflect with the road haulage industry on the words that he has uttered tonight. When the industry has had a chance to work out what those words amount to, it may insist that we put the issue to the vote on Report, so that it can have the assurances that it seeks. Meanwhile I beg to ask leave to withdraw the amendment.
	Amendment, by leave, withdrawn.
	Clause 134 ordered to stand part of the Bill.
	Bill (Clauses 4, 19, 23, 26 to 29, 87 to 92, 131 and 134 and Schedules Nos. 1, 5 and 38) reported, without amendment; to lie upon the Table.

DELEGATED LEGISLATION

Mr. Deputy Speaker: With permission, I shall put together the motions relating to delegated legislation.
	Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),

Environmental Protection

That the draft Offshore Chemicals Regulations 2002, which were laid before this House on 26th March, be approved.

Social Security

That the draft Social Security and Child Support (Decisions and Appeals) (Miscellaneous Amendments) Regulations 2002, which were laid before this House on 10th April, be approved.

Social Security (Northern Ireland)

That the draft Tax Credits (Decisions and Appeals) (Northern Ireland) (Amendment) Regulations 2002, which were laid before this House on 10th April, be approved.

Dentists

That the draft Dental Auxiliaries (Amendment) Regulations 2002, which were laid before this House on 25th April, be approved.
	That the draft Dentists Act 1984 (Dental Auxiliaries) Order 2002, which was laid before this House on 30th April, be approved.—[Mr. Woolas.]
	Question agreed to.

EUROPEAN COMMUNITY DOCUMENTS

Motion made, and Question put forthwith, pursuant to Standing Order No. 119(9) (European Standing Committees),

Railways

That this House takes note of European Union documents Nos. 5721/02 Commission Communication 'Towards an integrated European railway area', No. 5744/02 draft Directive on the safety of the Community's railways, No. 5723/01 Draft Directive amending Council Directive 96/48/EC and Directive 2001/16/EC on the interoperability of the trans-European rail system, No. 5724/02 draft Regulation establishing a European Railway Agency, No. 5726/02, Recommendation for a Council Decision authorising the Commission to negotiate the conditions for Community accession to the Convention concerning International Carriage by Rail (COTIF), and No. 5727/02, draft Directive amending Council Directive 91/440/EEC on the development of the Community's railways; and endorses the Government's approach to negotiations on these proposals in the Council.—[Mr. Woolas.]
	Question agreed to.

STATUTORY INSTRUMENTS (JOINT COMMITTEE)

Ordered,
	That Mr. Harold Best and Mr. Ivan Henderson be discharged from the Select Committee appointed to join with a Committee of the Lords as the Joint Committee on Statutory Instruments and Huw Irranca-Davies and Chris Mole be added to the Committee.— [Mr. Woolas.]

TRAVEL BY HONOURABLE MEMBERS TO NATIONAL PARLIAMENTS AND EUROPEAN UNION INSTITUTIONS

Resolved,
	That the Resolution of 26th May 1999 relating to travel by honourable Members to national parliaments and European Union institutions be rescinded and the following provision be made in its place:
	(1) That, in the opinion of this House, provision should be made as from 1st April 2002 for reimbursing honourable Members in respect of the cost of travelling on parliamentary duties between the United Kingdom and any European Union institution in Brussels, Luxembourg or Strasbourg and to the national parliament of an EU state or a candidate country and any additional expenses necessarily incurred in such travelling, subject to the conditions that
	(a) the amount payable to an honourable Member in any year, beginning with 1st April, shall not exceed the aggregate of the cost of three return business class airfares for the journey on the assumption that the journey begins and ends at a London airport and that the destination is any of the three cities mentioned above or the location of the national parliament of an EU state or a candidate country; and
	(b) subsistence for each journey made under this Resolution shall be restricted to two nights at the Civil Service class A standard subsistence rate for the time being in operation;
	(c) an honourable Member must submit in advance to the Fees Office, Department of Finance and Administration a statement of the visit's purpose, location and duration and the persons or organisations to be met; and
	(d) expenditure in pursuance of this Resolution within financial year 2002–03 shall not exceed the total currently planned for expenditure on travel by honourable Members to European Union institutions or European national parliaments within that year.
	(2) Expenditure under this Budget should form part of the General Services Budget and, if so advised by the Speaker's Advisory Panel, the Speaker and the Leader of the House shall have the power to vary the provisions of this Resolution in future financial years.—[Mr. Woolas.]

PETITION
	 — 
	Knutsford Crown Court

George Osborne: I wish to present to the House a petition to save local justice in my county, organised by the Knutsford Guardian and many local shops, restaurants and businesses and signed by 2,603 local people in just a couple of weeks. The petition states:
	The petition of the residents of Knutsford and the surrounding area declares that they wholly reject the plans to close Knutsford Crown Court and believe closure of the historic building will make the criminal justice system more remote from local people.
	The petitioners therefore request that the House of Commons urge the Lord Chancellor to intervene on the petitioners' behalf and block the planned closure of Knutsford Crown Court.
	And the petitioners remain, etc.
	To lie upon the Table.

PAUL EDWARDS

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Woolas.]

Andrew Hunter: On 23 April, the Minister for Sport replied to my parliamentary questions about UK Sport, a publicly funded body, and about the case of my constituent Mr. Paul Edwards. That followed an exchange of correspondence between the Minister and me in January and February, and a meeting in March between Sir Rodney Walker, chairman of UK Sport, Michelle Verroken, director of anti-doping, Paul Edwards, his advisers and me.
	In one of my questions, I asked the Government to
	"take measures to ensure that UK Sport has sufficient powers to conduct inquiries into previous rulings on the alleged use of performance-enhancing substances."
	I asked that because of the manifest reluctance of UK Sport, UK Athletics and the testing laboratory to reopen an issue that is convenient for them to keep closed.
	The Minister's answer referred to future, not past cases. He replied:
	"UK Sport is the lead agency for the Government's anti-doping programme. The National Anti-Doping Policy, recently launched by UK Sport, sets out standardised procedures to ensure that governing bodies of sport have consistent, transparent and accountable anti-doping procedures. The National Anti-Doping Policy has clearly defined independent review, disciplinary and appeal processes built into it."
	I sincerely hope that the Minister's faith in UK Sport's ability to preside over
	"consistent, transparent and accountable anti-doping procedures"
	is well founded. My experiences in the past six months suggest that that may not be the case.
	In those six months, UK Sport appears to have taken no effective action about Mr. Paul Edwards, and UK Athletics has refused to take any. The way forward that has been offered is, as I understand it, a recipe for even more delay. That does not inspire confidence in anti-doping procedures of the future.
	In a reply to another question, the Minister stated:
	"It would not be appropriate for Ministers to intervene in individual doping cases."—[Official Report, 23 April 2002; Vol. 384, c. 153W.]
	I agree that that would be so in an ideal world. However, in the case of my constituent, UK Sport and UK Athletics appear so far to be institutionally incapable of tackling what has become an issue of morality and justice. We have encountered stonewalling, delaying tactics, wilful prevarication and appalling obfuscation.
	There is no need for me to remind the Minister that UK Sport is wholly funded by taxpayers' and lottery money. Ultimate accountability for the use of that money rests with the Minister as a custodian of the public purse. In the case that we are considering, public money is working against individual justice.
	Incredible to relate, the testing process in the case of Paul Edwards clearly infringed the code of the International Olympic Committee, UK Sport's requirements and those of the International Amateur Athletics Federation. The tests were therefore invalid and the case against Edwards collapses. UK Sport and UK Athletics have known that for many months.
	In testing the samples, the British Athletic Federation infringed the IOC code of testing. Appendix C of article 5:6 demands that, to maintain the integrity of analysis, the two samples must be tested by entirely different personnel. If that is not possible, the B sample must be tested at a different laboratory. That did not happen with my constituent. The same person tested both samples in the same laboratory. The tests were therefore invalid.
	The IOC medical code was also infringed. It requires the production of a chain of custody. A form, which accompanies the samples, must be signed by every custodian. In Edwards' case, it was never produced. When the deficiency was discovered, UK Sport tried to recreate one, but it did not account for the first 24 hours of the samples' transit. It is simply not possible to establish that the samples were kept free from contamination.
	UK Sport's requirements were not observed. According to its newsletter in December 1996, the pH level of the sample had to be recorded by the sampling officer at the time of collection. In the case of Paul Edwards, the sampling officer did not do that. He thereby failed to follow the procedures required by UK Sport. By its own standards, the tests were invalid.
	More than that, IAAF requirements were not observed. It has been accepted that poor storage leading to sample deterioration can distort epitestosterone-to-testosterone ratios. At the time, the IAAF required both pH and specific gravity data to be taken. In Edwards' case, they were not, so the tests also failed to conform to IAAF standards.
	The IAAF would have required a second sample to be collected if the first sample had had a pH level in excess of 7—the acceptable range being between 5 and 7. Even if the pH had been measured and accepted at 7, however, the laboratory reading of 7.3 would indicate deterioration in the sample between collection and testing, owing to poor storage after collection and before testing. Moreover, a pH reading of 7.3 exceeds accountability guidelines for the processing of samples. I understand that it was this point that eventually cleared Diane Modahl. In Edwards' case, it has been ignored.
	The infringement of IOC, IAAF and UK Sport requirements is not the end of the story, however: it is nothing like it. Just as extraordinary is the fact that the laboratory never produced the calibration data without which the soundness of the testing process cannot be established. It cannot, therefore, be established that the tests were sound. The disciplinary committee chairman confirmed:
	"We observe that it is not possible to make a quantitative assessment of the epitestosterone to testosterone ratios because no calibration data have been provided. We consider that in the future it should be."
	Amazingly, having admitted this deficiency, the chairman went on to base his ruling on what was an unproven and entirely assumed epitestosterone—testosterone ratio. It beggars belief that an athlete's career has been destroyed on this basis. Moreover, I am told that it was this precise point—the absence of calibration data—which led to the lifting of the ban on Mark Hylton on appeal. What happened with Hylton should have happened with Edwards.
	In Edwards' case, credulity is stretched even further. His tests are recorded as having been completed in three minutes. Other sampling officers are prepared to stake their integrity on the assertion that accurate testing cannot possibly take place so quickly. On this, UK Sport's reaction is extraordinary. It hides behind its own regulations and refuses to comment. It has stated:
	"As it is the policy of UK Sport that its sampling officers may not discuss individual cases or comment on procedures followed, comments by sampling officers are not recognised as fact".
	In other words, UK Sport is prepared to ignore what a sampling officer says if his comments are inconvenient or embarrassing.
	This is still not the end of the saga. For five years, my constituent has protested that information essential to his defence was withheld from him. The testing laboratory, UK Athletics and UK Sport denied this, time and again, until 5 February this year, when UK Athletics wrote to him:
	"UKA accepts that certain information requested by you was not provided prior to the hearings."
	As Edwards has always argued, this meant that he could not expose the defects of the testing process during the hearings. Even his many requests for data protection were refused.
	The saga continues. The samples provided by Edwards were stored in Versapak containers. Even at the time, it was acknowledged that these were unreliable. In UK Sport's own words,
	"we could not guarantee that it"—
	the Versapak closure system—
	"reached the standard UK Sport wanted to achieve for the security of its sample collection system",
	but
	"no reasonable alternative was on the market at that time."
	In other words, there was no reliable container system at the time. Incredibly, UK Sport and UK Athletics persist in saying that this has no bearing on the case. In fact, this confirms absolutely the unreliability of the testing process in Edwards' case.
	It would be hard to compose a saga of greater incompetence than that involved in the circumstances of the testing process and hearings that led to the imposition of Paul Edwards' life ban. There were appalling irregularities and glaring inconsistencies: it was a total shambles. UK Athletics insists that the panels hearing Edwards' case were independent, yet all three were wholly appointed by UK Athletics. Moreover, at one of the hearings there was no one competent or qualified to receive scientific evidence.
	Mr. David Moorcroft of UK Athletics is on record as saying that the standard of evidence required in dope-testing cases must be at least as high as the standard required in a criminal court. If only that were true. In a criminal court, the so-called evidence against Paul Edwards would have been thrown out years ago on the basis that it was fundamentally flawed.
	The Minister is a fair and reasonable man. He will know, even if is not politic for him to acknowledge it publicly this evening, that any one of the irregularities I have listed would be sufficient for the charges to be dismissed in a criminal court of law. An appalling injustice has been inflicted on my constituent, and I am dismayed that UK Sport and UK Athletics have so far failed to deliver justice.
	What confidence can anyone have that UK Sport can be an effective lead agency, and UK Athletics a led agency, in a national anti-doping policy that is consistent, transparent and accountable, when they cannot put right the monstrous injustice to my constituent that is being perpetrated? The time is long overdue for my constituent's life ban to be lifted. That is only right, and I appeal to the Minister.

Richard Caborn: I congratulate the hon. Member for Basingstoke (Mr. Hunter) on securing the debate. I know that he supports his constituent passionately, as is absolutely right.
	In recent months—indeed, years—this subject has risen on the political agenda. Most people now recognise that the use of drugs in sport constitutes cheating, and undermines the integrity of sport. Indeed, it probably tarnishes sport more than any other problem it encounters. The Government and I are committed to the battle against doping in sport, and I welcome the opportunity to debate it this evening.
	In the United Kingdom, we are committed to achieving a partnership between sport and Government to tackle these problems. The Government fund UK Sport to undertake, among other things, the Government's programme of action to combat the use of drugs in sport. UK Sport's anti-drugs programme includes in-competition and out-of-competition testing of athletes, the development of a national policy framework, and the provision of education and information services for athletes and sports governing bodies. The cornerstone of the programme has been the introduction of the anti-doping policy.
	Over the last two years UK Sport, in co-operation with sports governing bodies, has made considerable efforts to develop minimum standards for anti-doping procedures in the UK, and has consulted extensively on the proposals. I was pleased and honoured to attend the launch of the national anti-doping policy in January.
	The need to respond to major changes in sport, such as the increased availability of supplements, the use of blood testing and concerns about the adequacy and consistency of disciplinary procedures, added a fresh urgency to the need for a strong national policy. That policy provides the framework for a coherent, rigorous and accountable anti-doping system that is based on four key elements. First, it promotes greater consistency in procedures and decision making across governing bodies and sports federations. Secondly, transparency and accountability enable the setting of clear minimum standards that need to be achieved, of clear lines of responsibility for all involved in the process, and the establishment of open accountability in the management of results. Thirdly, an independent review and disciplinary and appeals process sets out a clearly defined timetable for the initiation of each stage of the process. It also establishes standards and procedures for independent decision makers, and clear reinstatement conditions. Fourthly, accountability of funding provides a consistent framework for the investment of public funding in sport, and for the suspension of lottery funding for those who commit doping offences.
	The purpose of the national anti-doping policy is to set out clear guidelines and lines of responsibility for all involved in the anti-doping procedures, not just governing bodies. The policy also requires ongoing compliance, so that all concerned are closely monitored to take into account developments in programmes and procedures. Through the development of the national anti-doping policy, the UK has established a rigorous and effective anti-doping programme that is rightly regarded as probably one of the best in the world.
	UK Sport has also taken account of significant international developments in anti-doping. The welcome step of setting up the World Anti-Doping Agency in 1999 moved international co-operation against doping to a new level, and gave an added impetus to the development of the national anti-doping policy. WADA's ability to take effective action against doping relies on the existence of national standards that are in line with international agreements. The UK's national anti-doping policy has been developed in accordance with the international standards and procedures that WADA has endorsed and adopted.
	We are one of the first countries to produce a national policy that complies fully with the international standard; in doing so, we are helping to maintain our leadership role on the international stage in the fight against doping. We are hopeful that the International Federation for Sport will adopt the standards promoted by WADA to ensure complete consistency worldwide.
	UK Sport is subject to scrutiny by bodies such as the British Standards Institution, WADA and the international standards organisation. As we know, they are powerful, transparent and well-respected bodies, and we are scrutinised by them. Achieving certification by those bodies provides an independent assessment of the validity and effectiveness of their anti-doping programme and procedures. In addition, the National Audit Office—another well-respected organisation that does much work for this House, and which applies its principles rigorously—audits UK Sport's anti-doping procedures.
	In short, the new policy provides a consistent and transparent system that benefits athletes, governing bodies and sports fans alike. Those key features should reassure the hon. Gentleman that our anti-doping programme has adequate levels of independent scrutiny, and meets the relevant standards currently in place nationally and internationally. I want to put on the record the fact that the staff of UK Sport carry out their work very professionally. The other day, I had a pleasant discussion on anti-doping with the president of the International Olympic Committee, who mentioned the role that UK Sport and the British institutions have played in developing international standards. Indeed, the treasurer of WADA is one of the officers of the British Olympic Association.
	The hon. Gentleman expressed a number of concerns about the individual case of an athlete in the UK—Paul Edwards—and it is important to respond to those concerns. It would be helpful to clarify the roles and responsibilities of the different bodies involved in any doping case. As Minister for Sport, my role is to ensure that the UK has in place appropriate policies and procedures to achieve a drug-free environment in sport. To that end, we have put in place an anti-doping agency, UK Sport, to undertake the Government's programme of action.
	UK Sport is responsible to the Government and its role is twofold. First, it is responsible for managing the UK's anti-doping testing programme. Secondly, it is responsible for ensuring that the national governing bodies of sport comply with the national anti-doping policy.
	Following a positive test, it is the governing body's responsibility to decide what action to take and to ensure that an athlete receives full access to appropriate independent review and appeal procedures to establish the final outcome. That would include an independent review of the evidence in the case; a disciplinary hearing; and an appeal hearing, if requested. It should be made clear that Government have no direct responsibility for the actions taken by governing bodies here. Contravening anti-doping regulations is a matter of professional misconduct in sport, and the decision to ban an athlete as a result of a positive drug test is a matter for the national governing body of any sport and that sport's international federation.
	In the Edwards case, the procedures operated by the relevant sports governing body at the time conformed to the national anti-doping policy by including an independent review of the evidence, a disciplinary hearing and an appeal hearing, all of which were conducted before a Queen's Counsel. The procedures and the appeal complied fully with the policy. However, Mr. Edwards has continued to query a number of issues relating to his case, so UK Sport has offered to look into his concerns. If a doping case has been through all the relevant independent review and appeal procedures, UK Sport is not required to do that. It has agreed to do so in Mr. Edwards' case because of his assertion that new evidence has come to light.
	UK Sport's investigations will seek responses from the various parties responsible for the stages of the procedures being questioned and will confirm whether the procedures have been appropriately followed or whether new information or evidence is being presented that should be reviewed. UK Sport's investigation is still ongoing and it would not be appropriate for me to comment at this stage.
	Apart from the investigation by UK Sport, Mr. Edwards could ask for his case to be referred to an independent sports tribunal such as the sports dispute resolution panel or the court of arbitration for sport. All the relevant parties involved in the case would have to agree to that course of action. If Mr. Edwards has concerns specifically about the role of UK Sport, it would be possible, within the constraints of the Parliamentary Commissioner Act 1967, for the hon. Gentleman, on behalf of his constituent, to ask the Parliamentary Commissioner for Administration, the ombudsman, to look into its actions.
	I would, therefore, like to reassure the hon. Gentleman that the Government are committed to ensuring that the UK has in place strong, robust procedures for tackling the problem of doping in sport. An essential component of such procedures must, of course, be the facility for athletes to have the opportunity to clear their names. As I have explained, there are clear and well-defined avenues to address complaints that arise from cases such as this one. As a result, I can also assure the hon. Gentleman that he can have confidence in UK Sport as the lead agency for anti-doping in the UK and in the national anti-doping policy as an effective instrument to combat the problem of doping in sport. That is the right way forward.
	Question put and agreed to.
	Adjourned accordingly at eleven minutes to Nine o'clock.